Health economics is the study of how scarce resources are allocated among alternative uses for health care to maximize welfare. It uses economic concepts and tools to examine how individuals and societies choose to spend their available resources on health and health care. Some key aspects of health economics include examining costs and benefits of health policies and programs, evaluating efficiency and effectiveness of different treatment options, and understanding how economic factors influence health care utilization and outcomes. Common tools used in health economic analysis include cost analysis, cost-benefit analysis, cost-effectiveness analysis, and cost-utility analysis.

1. Health economics
WHATIS ECONOMICS?
 Economics is the science of scarcity. Itanalyses how choices are structured
and prioritized to maximize welfare within constrained resources.
 Economics is the study of distribution of scarce resources commonly
known as goods and services across a population
 The Economics is the science that deals with the consequences of
resources scarcity.
 The discipline of economics deals with useof scarceresources to satisfy
human wants and needs how best to use the resources available.
MODELS OF HEALTH ECONOMICS

2. HEALTH AND HEALTH ECONOMICS
HEALTH ECONOMICS
“Health economics is the study of distribution of health care. Itis a branch of
economics concerned with issues related to efficiency, effectiveness, valueand
behavior in the production and consumption of health and health care.”
“Itis the allocation of resources within the health systemin the economy, as well
as functioning of health care market.”
“Health economics is concerned with the formal analysis of costs, benefits,
management, and consequences of health and health care. Itis the branch of
economics concerned with the application of economic theory to phenomena and
problems associated with health and health care.”
“Health economics is the study of how scarceresources areallocated among
alternative uses for the care of sickness and the promotion, maintenance and
improvement of health, including the study of how health care and health-related
services, their costs and benefits, and health itself are distributed among
individuals and groups in society. Itcan, broadly, be defined as 'the application of
the theories, concepts and techniques of economics to the health sector”

3. CONCEPT OF HEALTH ECONOMICS
Microeconomics
•Microeconomics is the study of economic behavior of individual decision
making units such as: consumers, resourceowners and business firms in a free
enterprise economy.
•This can be measured by conducting market surveys, pilotand feasibility studies.
Health Microeconomics
 Health microeconomics is concerned with how individuals choose, minimize
costs or maximize profitor utilities within a given health care systemwithin
a set of rules and prices.

4. NEED FOR HEALTH ECONOMICS
IMPORTANCE OF HEALTH ECONOMICS
 To formulate health services
 To establish the true costs of delivering health care or to estimate all real
costs like the use of patients' time, loss of output elsewhere in the system
etc
 To evaluate the relative costs and benefits of particular policy options
 To estimate the effects of certain economic variables like user charges,
time and distance costs of accessibility, etc on the utilization of health
services

5. HEALTH POLICY ISSUES RELEVANCY OF ECONOMICS

6. Major Tasks of Economics In Health
FEATURES OF HEALTH ECONOMICS
 Health and medical care is considered as economic goods
 Health is a privateor a public good
 Measurement of health is also considered in economics
 Stock of health
 Investmentaspects of health
 Loss due to ill health
 Resource costs of different diseases, effects of health and medical care
provision
 Planning of health and medical care
 Choice of technology in health care system, etc.
 Provision of equity in health outcomes and health care;
AREAS OF HEALTH ECONOMICS
 Economic aspects of relationship between health status and productivity 
 Financial aspects of health careservices

7.  Economic decision making in health and medical care institutions
 Planning of health development and such other related aspects
FACTORS INFLUENCING HEALTH ECONOMICS
 Extensive governmentintervention
 Intractableuncertainty in severaldimensions
 Information asymmetric
 Barriers to entry
 Externalities and the presence of a third-party agent
TOOLS USED IN ECONOMIC ANALYSIS
ECONOMIC EVALUATION
Economic evaluation is the comparativeanalysis of alternative courses of action
in terms of both their costs and consequences in order to assistpolicy decisions
Steps in Economic Evaluation

8. TYPES OF ECONOMIC EVALUATION
Cost analysis
Cost analysis is a resourcetool for financial management in hospital or
department. Itis an economic evaluation technique that involves the systematic
collection, categorization, and analysis of programor intervention costs, and cost
of illness.
When to Use Cost Analysis?
Cost analysis can be used as an evaluation method when
 Only one programis being assessed
 Information aboutprogrameffectiveness is not available, or the
interventions being assessed and compared areequally effective.
Objectives of Cost Analysis
 To assess theefficiency and effectiveness of function and their cost
implication.
 To improve the policy relevance and utility through assessment, planning
and avoidanceof wastefulexpenditure in the hospital.

9.  To allow researchers to achieve costminimization for the programs under
consideration.
Purposes of Cost Analysis
 A tool for planning and cost projection
 To assess the efficiency of a programme
 To assess the priorities
 Accountability
 To assess equity
Principles of Cost Analysis
 Make explicit the analytic perspective
 Describethe anticipated benefits
 Specify the components of costs
 Discountto adjustfor differential timing
 Performa sensitivity analysis
 Calculate measurement of efficiency
FRAMEWORKOF COST ANALYSIS
1. Identify and define the problem
2. Defining the alternatives
3. Defining the audience
4. Define the perspective
5. Define time frame
6. Determine the time frame and analytic horizon
7. Choose a format/methodology
BASIC STEPS OF COST ANALYSIS
 Define program, treatment, or technology to be analyzed
 Develop a framework for costanalysis of program
 Describeobjectives of analysis
 Select type of costanalysis

10.  Design methodology of cost analysis
 Apply principles of costanalysis
 Describestudy outcomes
 Development of costinventory
 Preparation of costsummary
 Measurement/evaluation of resources used
 Calculate cost analysis results : total cost, average costs, and marginal costs
 Sensitivity analysis and discounting
Total cost (TC)
The total cost of a programor an intervention is derived by adding all the
costs incurred in producing a given level of output. It includes the costof all
the personnel, the supplies, and the equipment that were identified in the cost
inventory.
TC = Quantity of resource1 X value of that resource1 + ....+Quantity of
resourcen X value of that resourcen
Average cost (AC)
The average costis the costper unit of output (e.g., cost per patient treated or
cost per child immunized). AC is computed by dividing the total cost by the
number of participants or other relevant intervention units.
The formula is AC = TC / Q ; Q= Units of output
Marginal cost (MC)
The marginal cost is the resourcecostassociated with producing one additional or
one less unit within the sameintervention/program
MC = Change in total costs/changein quantity produced
Or
MC = (TC' -TC) / (Q' Q) TC' = Total costs a higher output level
TC = Total costs at lower output level Q' = Higher level of output Q = Lower level
of output