HEALTH ECONOMICS

Ms . Neethu Vincent
Assistant Professor
KVM College of Nursing
 Introduction
• Health economics generally deals with the purpose and
planning of budget which is required to be done in the
health care delivery system for providing care.
 Health:
• Health is a state of complete physical,
mental and social well-being and not
merely the absence of disease or infirmity.
 Economics:
• It has been variously described as the study
of wealth, study of welfare and study of
scarcity.
• It is the discipline that determines the price
and the quantity of limited financial and
nonfinancial resources devoted to the care of
the sick and promotion of health.
 Health economics
• It is the allocation of resources within the health
system in the economy, as well as functioning of
health care market.
Aim of health economics:
• To quantify overtime the resources used in health service
delivery.
• To organize, allocate and manage the resources.
IMPORTANTANCE OF HEALTH
ECONOMICS
1. To formulate health services
2. To establish the true cost of delivering health care or to
estimate all real cost
3. To evaluate the relative costs and benefits of particular
policy options
4. To estimate the effects of certain economic variables likes
user charges ,time and distances cost of accessibility ,etc
on the utilization of health services
5. Health ,organization and economic development
6. To identify and measure health , disease and basic
needs
7. To identify determinants of growth and economic
development ,elements of health expenditure by use
of macro economics
8.To determine the economic characteristics of health
care and health related activities
CONCEPTS IN HEALTH ECONOMICS
 principles
Health economics works on two principles:
Microeconomics: It deals with the behaviors of the individuals and
organizations and the effects of those behaviors on prices, costs,
and the allocating and distributing resources.
It has following factors:
• Supply and demand: - These both factors are interrelated to
each other because if there is no demand then there is no
supply, but if there is good demand then there is a good supply
and the cost of demanding objects will be higher.
• Efficiency: - It refers to producing maximal output, such as
good or services, using a given set of resources, such as labor,
time, and money.
• Effectiveness: - It refers to the extent which a health care
services meets a stated goal or objective, or how well a program
or service achieves what is
Macroeconomics:
• It deals with the large- scale or general economic factors, such
as interest rates and national productivity.
It has two factors:
• GNP & GDP: - The National Product and Gross Domestic
Product are the conventional terms used to understand the
performance of the economy.
These indicate the sum total of three components in a country:
Personal consumption;
Expenditure of goods and services;
Investment expenditure.
• GNP & GDP serves as measures of total production of goods
and services in a country during year.
Meaning and scope of health economics

Determinants of health

Demand for health and health care

Supply of health care

Health care markets

The relationship between economic growth
and health

Health sector budgeting and planning

National health systems

Equity in health outcomes and in health care

International health.
 Medical
advances

Due to
public increase in
awareness life
expectancy

NEED FOR
HEALTH
ECONOMICS Changes in
Higher
expectation family
among structure and
people norms

Advances in
health
research
FEATURES OF HEALTH ECONOMICS

Health and medical care is considered as

economic goods
Health is a private or a public good
Measurement of health is also considered in
economics
Stock of health
Investment aspects 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;
FACTORS INFLUENCING HEALTH
ECONOMICS
Extensive government intervention

Intractable uncertainty in several dimensions

Information asymmetric

Barriers to entry

Externalities and the presence of a third-

party agent
 TOOLS USED IN ECONOMIC
ANALYSIS

Relationships Graphical
The Direction
Economic between Representation
of the
Variables Economic of
Relationships
Variables Relationships
 Economic analysis:
There are four main types of economic analysis in health:
• Cost- minimization: In this the inputs are compared
and outputs are considered to be equal, which rarely
so.
• Cost benefit: In this type of analysis all outputs are
measured in monetary terms.
• Cost effectiveness: Here a clinical output such as
morbidity, mortality, reduction in blood pressure, or
quality of life, etc. is measured as a measure of the
effectiveness.
• Cost utility: - Cost-utility analysis is one form of cost-
effectiveness analysis, which allows the comparison of
different health outcomes by measuring them all in terms
of a single unit-(QALY)
It weighs costs and. quality adjusted health outcome of
each intervention in order to take the decision for the
programme to be implemented.
 Demand:
• Demand refers to how much of a product or
services is desired by buyers .
• Demand is the amount of a good that
consumers are willing to buy at a certain price .
 TYPES OF DEMAND
• Derived
• Effective
• Utility compensated
Factors influencing health
demands
• Consumer’s Income,
• Price of health care (relative),
• consumption pattern,
• Taste & Preference of the consumer,
• Perception about health needs &health care.
 Law of demand
• People will buy more of products at a lower price
than at a higher prices, if nothing changes
• At a lower price more people can afford to but
move goods and more of an item more frequently
than that can at a higher price
• At lower prices , people tend to buy some goods as
a substitute for more expensive goods
 Demand for health care
services
• Individual make choice about medical are .They
decide when to visit doctor when they feel sick,
whether to immunize their children ,and how
often to have check-ups .
 Factors influencing health
care demand
• Change in the age structure
• Changes in consumer attitudes
• Increase in real income
• Advances in medical technology
 Supply
• The amount of goods producer are willing
and able to sell at a given price
• Suppliers include hospitals, which provide
health care directly, and medical equipment
and pharmaceutical companies, which
provide inputs to the healthcare production
process.
Factors affecting supply
include
• Exogenous determinants of supply; in other
words, factors that are held constant
underlying the supply curve.
• Endogenous determinants of supply ; Price .
 Factors influencing health
care supply
• Number of sellers
• Resource prices
 Law of supply
• At higher prices , producers are willing to offer
more products for sale than at lower prices
• The supply increases as prices increases and
decreases as prices decrease
• Those already in business will try to increase
production as a way of increasing profits .
 Cost:
• It refers to the resources which are spent in carrying out
health activities so far as the health care sector is
concerned.
• In general, costs can be classified into two broad groups:
1. Capital costs: - These costs are borne irrespective of the
workload of any health center and are fixed.
• These may include- Building, i.e. the health center,
hospital etc.
2. Operating costs:
These costs are related to the level or type of activity in a health
institution. Some operating costs will change daily and some
from year to year.
These operating costs include:
Salaries, wages and allowances of health staff at different levels.
 Medical supplies, drugs etc.
 Transport operating costs.
 Maintenance and repairs.
 Training.
 Power.
 Other miscellaneous items.
 Factors influencing health
care cost
• Greater demand for services
• New technology
• Prescription drugs
• Cost shift due to under funded public programs
• Government regulation and mandates
• Medical malpractice liability
• Increased chronic illnesses
 Cost containment
• It is the business of maintaining expense levels to
prevent unnecessary spending .
• It is thoughtfully reducing expenses to improve
profitability without long term damage to the
company
 Cost containment in health
care
• The process of controlling the expenses required
to operate an organization or perform a project
within pre planned budgetary constraints
 Cost containment process
• Cost containment process is an important
management function that helps to keep costs
down to only necessary and intended expenses in
order to satisfy financial targets
 Family budget
• The family budgets estimate family based specific
costs on different heads . Family budgets provide
a more accurate and complete measure of
economic security.
Components of family budget

• Pay their living expenses

• Keep debts to a manageable levels
• Saving that make life enjoyable
• Avoid constant money anxiety
• Meeting health care needs for preventive and promotive
health care and also future illness
 Role of nurse in health
economics:
• Nurses play a central role in cost containment, care
quality, and patient safety.
• Nurses actively engages in leading efforts to improve
patient care and reduce costs.
• Health care Issues and Trends
• Governing on Behalf of Stakeholders.
• Monitoring Financial Performance.
• Building a Culture of Quality and Safety.
• Monitoring Quality Performance.
• Set policy that guides care delivery.
• Set strategy to help ensure the future health of a Vital
community resource.
• Assume a valued community leadership role.
• Help the boards identify, clarify, and focus on the wants
and needs of the patients.
• Share patient needs and concerns and ensure