This document provides an overview of key concepts in health economics. It discusses the definition and scope of health economics, as well as important microeconomic and macroeconomic factors that influence the health sector. Some key methods covered include economic evaluation techniques like cost-effectiveness analysis, cost-benefit analysis, and cost-utility analysis. Health outcomes measures like QALYs and DALYs are also explained. The document aims to introduce foundational ideas around applying economic principles and evaluation to issues of health, healthcare delivery, and resource allocation.

1. Dr Dipesh Tamrakar
Junior Resident
SPH & CM

2. 

Health Economics- introduction
- Economics
-Importance of economics on health
- health economics
- how health care market is different
Economic Evaluation
- Definition
-Concepts of cost
-Valuing outcome
-Methods

3. 
“Economics is the study of how people and
society end up choosing, with or without the
use of money, to employ scarce productive
resources that could have alternative uses, to
produce various commodities and distribute
them for consumption, now or in the future,
among various persons and groups in the
society. It analyses the costs and benefits of
improving patterns of allocation of resources
“(Samuelson, 1976)

4. 

Macro Economics: deals with the behavior of
economy as a whole( Growth rate, level of
employment)
Micro Economics: deals with individual
players in the field, such person, hospitals,
firms etc

5. 

Demand for health activities are unlimited
Resources , in contrast, are always scarce in
supply. so have to choose which resources to
use for which activities

6. broadly, defined as „the application of the theories,
concepts and techniques of economics to the health
sector‟
 concerned with matters :
-the allocation of resources between various health
promoting activities,
-the quantity of resources used in health services
delivery;
-the efficiency with which resources are allocated and
used for health purposes, and
-the effects of preventive, curative and rehabilitative
health services on individuals and society


7. Health
Economics
Health
Economics

8. 

Presence and extent of uncertainty
Uncertainty in demand – consumers are uncertain
about their health status and need for health care
in coming days – means demand for health care is
irregular.

9. 


Problems of information
Sometimes information is unavailable to all parties
(consumers and providers) concerned. For
example neither gynecologists nor their patients
may recognize the early stages of cervical cancer
without a pap smear.
At other times, the information in question is
known to some parties(providers) but not to
all(consumers) – information asymmetry a problem –
the provider offers both the information and the
service, leading to the possibility of conflicting
interests.

10. 
Lack of competition

Licensure requirements for providers

Restrictions in producing health manpower

Regulation to promote quality

11. 


Role of equity
In a pure market system the market distributes
output based on demand
however, given our social nature and caring
externalities , there raises the voice of equity
(fairness) in health sector because of correlation
between poverty and ill health

12. 



incomplete market
Markets is said to complete if the costs and
benefits of the consuming or producing the
particular goods is restricted to those engaged in
trading. However in health care , it is not always
case.
Positive externalities: vaccination, planting forest
Negative externalities: passive smoking, air
pollution

14. 

The identification, measure and comparison of
the costs(resourced consumed) and
outcomes(clinical, economic and humanistic) of
intervention
It is multidisciplinary and involves economics,
epidemiology, biostatistics, medicine,
pharmacy etc

15. Cost is the value of resources used to produce
something, including specific health services.
Types of Cost:
 Fixed cost: the costs associated with operating a

particular programme or intervention that do not vary with
the scale of provision such as the number of patients treated
or the number of tests performed, Eg rent, property tax,
insurance, cost of setting clinics.

Variable cost:
the cost associated with a programme or intervention that
varies with the size of the programme or the number of
patients treated with the intervention. Eg drugs, blood
products

16. 

Total costs : the sum of all the fixed and variable
costs associated with a particular scale of provision
of a programme or intervention. The greater the
scale of provision, the larger will be the total costs.
Average cost: the cost per unit of output. Each of the
three cost concepts discussed above can be
expressed as an average cost: average fixed costs,
average variable costs and average total costs, by
dividing cost by the measure of output (patient
Days, hospital admissions, diagnostic tests
performed, etc).

17. 


Marginal cost is the cost of producing one
extra unit.
marginal cost = the change in total costs
Opportunity cost: The cost of passing up the
next best choice when making a decision. For
example, if an asset such as capital is used for
one purpose, the opportunity cost is the value
of the next best purpose the asset could have
been used for

18. 
Direct Costs


direct health care costs
direct non-health care costs

Indirect Costs

Intangible costs:

19. 
Direct Costs represent the value of
 all goods, services ,other resources ,consumed in
providing health care

direct health care costs
 include costs of physician services, hospital services,
drugs, etc. involved in delivery of health care

direct non-health care costs
 are incurred in connection with health care, such as for
care provided by family members and transportation to
and from the site of care.

20. 
Indirect Costs.
"productivity losses."
 include the costs of lost work due to absenteeism or
early retirement, impaired productivity at work, and
lost or impaired leisure activity.
 include the costs of premature mortality


Intangible cost: non-financial costs such as
anxiety, pain or depression, which the patient
has to face due to sickness

21. 




Health utility: a measure of strength of preference
that people have for particular health states.
1: a year of full health
0:death(extremely bad health)
Health states that lie somewhere between
these two anchor points will have a utility
value that lies somewhere between zero and
one.
Assessment done with TTO, SG , VAS

22. 
-

Standard gamble: a method of establishing the
utility of a specified health state.( chronic
Disease)
P = Probability of restoration to full health
1-p= complementary probability of immediate
death
The utility of the specified health state is then
given by p

23. 
-
Time trade off: an alternative approach to
establishing health utilities
Given period of time in chronic condition = t
Shorten period of time in full health= x
The value of the health state is then given by
(x/t).

24. 


a summary measure of health gain that combines
(changes in) life expectancy and quality of
remaining life years.
It uses health utilities to weight improvements in
life expectancy according to the quality of life
experienced
Definition:” Number of years at full health that
would be valued equivalently to the number of
life years as experienced”

25. 


Suppose, dialysis treatment extends life by 15
years.
If individuals valued the first 10 years at 0.75 on
the scale of zero to one and last 5 years at 0.50 on
the same scale
Dialysis generated QALYs=10.0 ( 10 x 0.75 + 5 x
0.5)

26. Typically done with questionnaires
- Disease specific
. International prostate symptom score, LC-13
- Generic( SF-36 , NHP)
- Utility ( EQ-5D, HUI
 Utility Assessment
- TTO , SG, VAS


27. 


Measures healthy time lost from specific
diseases and injuries in a population
DALYs for a disease are the sum of the years of
life lost due to premature mortality(YLL) in the
population and the years lived with
disability(YLD) for incident cases of the health
condition.
One DALY is one lost year of healthy life

28. 

Example : A woman is
blind since 5 years
and she died at the
age of 50. What is
DALY?( weight factor
for blindness = 0.33)
5 x o + 45 X 0.33 + 30 x
1 = 34.85

29. 
Contingent valuation: is a method of valuing the
benefits of health services based on estimates of
the maximum amount that people would be
willing to pay for the availability of a service or
the minimum amount that they would accept
as compensation for not having the service
available

30. 



Cost-Minimisation Analysis (CMA)
Cost-Benefit Analysis (CBA)
Cost-Effective Analysis (CEA)
Cost-Utility Analysis (CUA)

31. 

it compares two or more options that achieve
the same effect(similar outcome).
Looks for lowest cost for existing service
provision (no benefits considered)

32. 

.. is a method to determine which program or
treatment accomplishes a given objective at the
least cost
benefits are expressed in natural units

E.g.: reduced mortality or live-years gained death
averted , points of blood pressure reduced, reducing
the risk of a health problem

33. 
Dr Do good wants to compare two different
strategies of for preventing the spread of
malaria which is endemic in district, to see
which one offers the best value for money.
Options: spray mosquitoes sites with
insecticides. Another is to provide impregnated
bed nets for households. What measure of
benefit should he use to compare them. What
information does he need to calculate it?

34. 
Cost per death
aveted= cost/
(efficacy x no. treated
x prob. contracting x
CFR
Spraying
breeding
site
Impreg
nated
bdnets
Annual
program cost
$10000
$10000
efficacy of Rx
15%
85%
Number
treated
10000
1000
Prob of cont racting disease
80%
80%
CFR
5%
5%
Death averted(
2x3x4x5)
64
34
Cost/death
averted(1/6)
$156
$118

35. 

CEA cannot be used to compare interventions
with different health outcomes
If the quality of life is the health outcome, then
CUA should be considered or if the
productivity increases are significant benefit,
then CBA may be better

36. 


CBA is an evaluation method for comparing
the monetary value of all resources
consumed(costs) in providing a program or
intervention with the monetary value of the
outcome(benefit) from that praogram or
intervention
Benefits and costs are expressed in monetary
units!
Advantages: allows comparison of programs of
entirely different outcomes

37. 

To value benefits in health care in monetary
units is difficult
Solution:



individuals willingness-to-pay approaches
Human capital approaches
Benefit- cost>0 or Benefit/cost>1

38. 

a form of cost-effectiveness analysis that
compares costs in monetary units with
outcomes in terms of the quantity and
quality of life e.g., in QALYs, DALYs
Eg $ per DALYs gained, $ per QALY

39. 




Average no of life years
gained per death averted =40
Case morbidity rate=20
Average length of illness=1
mo
Degree of disability during
illness=80
DALY gained=(deaths
averted x discoiunted
average number of life years
lost by 1 death) + ( case
morbidity rate x probability
of contracting disease x
number treated x efficacy x
lenth weighting x disability
weighting)
For spraying option:
10000/ (64 x 40) +(0.2x 0.8x
10000x 0.15x 0.083x 0.8) =
just under $ 4 / DALY
gained

For bed nets:
10000/ (34 x 40) +(0.2x 0.8x
1000x 0.85x 0.083x 0.8) = just
under $ 3 / DALY gained


40. 
-
-
Limitation of CUA
Measurement of utility is very time and
resource intensive
Lack of consensus on which measurement
methods

41. 

-
Carrying out an economic evaluation is not just
about producing a final figure for the cost
effectiveness of a particular strategy
Decision making required
Marginal cost and benefit information
Affordability
Flexibility
Health service capacity and attitude

42. 



Patient attitude
Connecting different options
Generalization of the result
Opportunity cost

44. 



Health Economics for DevelopingCounries: A
Practicle Guide, The university of York
Oxford Textbook of Public Health , 6th edition,
oxford publication
Park textbook of Preventive and Social
Medicine, 21st edition
A shiel, E Donaldcon and C. Milton et al
“Health Economic Evaluation” J. Epidemio &
Community Health 2002 56; 85-88

45. 



Anne Mills and Lucy Gilson “Health Economics
for Developing Countries: A Survival Kit” HEFP
working paper 01/88, LSHTM, 1988
Himanshu sekhar rout and Narayana chandra
nayak“HEALTH AND HEALTH ECONOMICS: A
CONCEPTUAL FRAMEWORK” “Health Economics
in India” New Century Publications, New Delhi,
2007, pp. 13-29.
Classes of health economics by pramod GC
Class on economic evaluation in ERT vellore