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The Economics of Healthcare https://www.youtube.com/watch?v=cbBKoyjFLUY Health Economics Health Economics What is Health Economics? 1. What is “Economics”? 2. What is “Health”? 3. What is “Health Economics”? Economics is about … Limited resources Unlimited “wants” Choosing between which ‘wants’ we c...

The Economics of Healthcare https://www.youtube.com/watch?v=cbBKoyjFLUY Health Economics Health Economics What is Health Economics? 1. What is “Economics”? 2. What is “Health”? 3. What is “Health Economics”? Economics is about … Limited resources Unlimited “wants” Choosing between which ‘wants’ we can ‘afford’ given our resource ‘budget’ Economics is about … Limited resources Resources are scarce Unlimited “wants” Therefore involves “choice” Choosing between which ‘wants’ we can ‘afford’ given our resource ‘budget’ Economics is about choice Good ‘A’ Resources Budget Good ‘B’ Economics in a nutshell is about The study of how scarce resources are allocated to fulfill infinite wants of consumers The study of how society decides what, how and for whom to produce Health Economics What is Health Economics? ▪ Health economics is the study of how (scarce) resources are allocated to and within the health sector. ▪ It is concerned with issues related to efficiency in the production & consumption of health services Health Health Economics Economics What is Health Economics?? It is concerned with issues related to efficiency in the production & consumption of health services. Production of healthcare (doctors, specialists, nurses, hospital care, primary care etc.). Consumption of healthcare ( How do we distribute healthcare services across the population? Based on what we produce and distribute healthcare services (who can pay or who needs it or some combination) How much money should the government spend on health care? What is Health Economics? Health economics is the application of economic theory, models and empirical techniques to the analysis of decision-making by individuals, health care providers and governments with respect to health and health care. Morris, Devlin Parkin and Spencer (2012) Health Health Economics Economics Why Study Health Economics? Health economy is large and growing Health Expenditure (% of GDP) World (2020) 10.89 Source: https://data.worldbank.org/indicator/SH.XPD.CHEX.GD.ZS?contextual=max&end=2020&name_desc=false&start=2000&type=shaded&view=chart Why Study Health Economics? The challenge is how can we improve our performance By spending less and Getting better outcomes Why study health economics? Anyone who has worked in the health sector should be aware of the issue of scarcity of resources. Demand for health services continues exceeding supply due to various reasons, such as: Ageing population in which they potentially require more health services Emerging new health technologies that make untreatable and risky conditions manageable and treatable People expectations increased (changes in consumer demand and attitude). Therefore, economists and economics might contribute to solve these problems. Why study health economics? ▪Health care market is different from other markets ▪Market failure ▪ Role of government in the health care markets ▪As more resources are allocated to healthcare, there are fewer resources available for other goods and services in other sectors (e.g. Education, Transportation, Infrastructure , etc.) How Health Economics Can Help ? Health systems face questions about efficiency of scare resources. However, there are several ways in which health facility (e.g. hospital) should improve the efficiency of their operations including: Length of stay could be reduced; Staff productivity could be increased; Equipment could be fully utilized; Over-prescribing of drugs could be avoided; Drug ordering and storage could be managed properly to avoid wastage and stealing; Nurses could replace doctors when appropriate; Low-cost equipment could replace when appropriate; To encourage the efficient use of resources, hospitals should collect financial data and managers should be trained to carry out cost analyses D. Supply of E. Market Analysis F. MacroEconomic Appraisal A. What is Health? What is it’s value? Health Economics ‘map’ H. Micro-Economic Appraisal B. What influences Health? (other than C. Demand for Health Care health care) Health Care G. Planning, budgeting, regulation mechanisms Key Economics Concepts and Principles EFFICIENCY EQUITY Key Economics Concepts SCARCITY OPPORTUNITY COST MARKET MARGINAL ANALYSIS DEMAND SUPPLY Key Economics Concepts Scarcity Opportunity cost Efficiency Equity Concept 1: Scarcity Concept 1: Scarcity Scarcity refers to there is a finite amount of resources such as time, money, materials, and labor, but an infinite desire for goods and services. This concept is a fundamental principle in economics and drives much of economic theory and policy Problem of scarcity ▪ Scarcity is not a shortage (a shortage is a mismatch between supply and demand) ▪ Resources are finite - we do not have an unlimited supply of resources used in the production of goods and services ▪ Resources are insufficient to produce all the goods and services that people want (desire) ▪ Resources are used in the production of outputs to satisfy our wants (desires ▪ These resources – factors of production – are scarce Scarcity in Healthcare There is a finite amount of medical resources available, including hospital beds, medical staff, medication, equipment, and financial resources. Because resources are limited, decisions and choices must be made regarding which health services to provide and to whom. This involves prioritizing certain treatments, procedures, or patient groups over others. Examples of Scarce Resources in Healthcare Medical Workforce: There might be a shortage of trained healthcare professionals, such as doctors, nurses, or specialists, especially in rural or underserved areas. This can result in longer wait times for patients and a higher patient-to-doctor ratio. Hospital Beds: During a surge in illnesses, such as an epidemic or pandemic, the number of patients may exceed the number of available hospital beds and critical care units. This can lead to difficult decisions about who receives intensive care. Access to Medication: Some medications, especially new or specialized treatments, can be in short supply. This might be due to high costs, limited production capacity, or supply chain issues. In some cases, drugs for rare diseases are scarce due to a small market that doesn't justify mass production. Medical Equipment: Scarcity can also apply to medical equipment like MRI machines, ventilators, or dialysis machines. This equipment is expensive and may not be available in all healthcare facilities. Vaccines and Public Health Resources: During a disease outbreak, vaccines, antivirals, or other preventative resources may not be available to everyone who needs them (e.g. COIVD19- Vaccine) This scarcity forces difficult decisions about how to allocate these resources to save the most lives. Case Study Scarcity in Healthcare Concept 2: Opportunity cost Concept 2: Opportunity cost “The value of forgone benefit which could be obtained from a resource in its next-best alternative use.” For example, if hospital resources are used to expand emergency services, those resources may not be available for elective surgeries. Good ‘A’ Implications of opportunity cost - Deciding to do A implies deciding not to do B (i.e. value of benefits from A>B). - Value not necessarily determined by “the market”. Resource Budget Good ‘B’ An Illustration of Opportunity Cost in Healthcare Paediatric Care (No Children Treated in ‘000’s) 30 28 24 18 10 0 Care of Elderly (No of Elderly Treated in ‘000’s) Opportunity Cost of Treating Children in Terms of Elderly Patients Forgone 0 2 6 12 20 30 Possibilities for Health Department Expenditure in a Year 0 1 2 3 4 5 Case Study Opportunity Cost in Healthcare Concept 3: Efficiency ( output/Input) Meeting a given objective at least cost (resources) Technical (Productive) Efficiency Concept 3: Efficiency Efficiency Maximising benefit for scare resources used The allocation of scarce resources that maximizes the achievement of aims (Knapp ,1984) Allocative Efficiency Producing the pattern of output (supply) that matches the pattern of consumer want (demand) – Market efficiency Technical (Productive) Efficiency The concept of technical efficiency is used in analyzing the production of health and health care Technical efficiency emphasizes the relationship between resource inputs and outputs Production is technically efficient if the most output possible is produced from a given set of inputs, or the fewest inputs possible are used to produce a given amount of output For example, the number of patients that can be treated in an out-patient clinic depends on the number of medical and nursing staff that are available and other inputs If the most out-patient care clinic that can be provided by one doctor and two nurses is 20 treatments each day, then it is technically inefficient to provide 19 treatments using that number of staff or to provide 20 treatments using more staff. Technical (Productive) Efficiency in Healthcare Optimizing Staffing: Ensuring that the right number of healthcare professionals is working to meet patient needs without overstaffing or understaffing. Equipment Utilization: Making sure that medical equipment is used to its full capacity and not lying idle or being underused. Process Optimization: Streamlining administrative and clinical processes to reduce waiting times and duplication of services. Cost-Effective Purchasing: Acquiring medical supplies and services at the best possible prices without compromising quality. Allocative Efficiency It’s about allocating resources in a way that maximizes the overall welfare of society. Allocative efficiency is achieved when resources are distributed such that it is not possible to make any one individual better off without making someone else worse off (Pareto efficiency). In healthcare context, it involves ensuring that the right mix of healthcare services is produced to meet the population's needs in the most effective way. Allocative Efficiency in Healthcare Matching Services to Preferences: Ensuring that the mix of health services produced matches the preferences and needs of the population. Budget Allocation: Appropriately distributing the healthcare budget across different services, interventions, and populations in a way that maximizes health outcomes. Health Interventions: Choosing to fund health interventions that provide the greatest benefit in terms of health outcomes for the population. Cost-Effectiveness: Investing in treatments and preventive measures that offer the best value for money in terms of improved health outcomes. Key Differences between Productive Efficiency and Allocative Efficiency Focus: Allocative efficiency is about what to produce (which services, for whom), while productive efficiency is about how to produce (the process of delivering services). Outcome vs. Process: Allocative efficiency is outcome-oriented (maximizing health outcomes), whereas productive efficiency is process-oriented (optimizing the production process). Scope: Allocative efficiency has a broader societal scope, considering the overall health needs of the population. Productive efficiency is more focused on the internal workings of healthcare providers. Both allocative and productive efficiency are essential for a well-functioning healthcare system. Allocative efficiency ensures that the right services are being provided to meet the population's health needs, while productive efficiency ensures that these services are delivered in the most cost-effective manner. E Price/ Cost Quantity Demand Supply Efficiency and ‘the market’ Price/ Cost Equilibrium Price PE QE Supply Demand Quantity Concept 4: Equity Concept 4: Equity Equity is always an important criterion for allocation of resources. It is observable that people attach more importance to equity in health and health care than they do to many other goods and services It is important to distinguish equity from equality Equity means fairness; in the health care context this means a fair distribution of health and health care between people and fairness in the burden of financing health care Equality means an equal distribution, but it may not always be fair to be equal. For example, it might be thought to be unfair both healthy and sick people are given equal amounts of health care Equity in Healthcare Equity in health economics is about ensuring that everyone has fair access to healthcare and the opportunity to achieve the best possible health outcomes, considering their individual circumstances and needs. It requires a commitment to social justice and often involves redistributive policies to address inequalities in health and healthcare. Balancing Equity and Efficiency Efficiency Efficiency refers to the allocation of limited economic resources to meet the healthcare needs of a society Equity Equity is the ‘fair’ distribution of benefits across the population Case Study How to Apply Health Economic Thinking and Analysis in Decision-Making Case Study: Small Town Clinic's Vaccine Decision Background: Dr. Lee runs a small clinic in a rural town. The clinic has a limited budget and has received enough funds to introduce a new vaccine program. However, the clinic can only afford to introduce one of two possible vaccines: Vaccine A or Vaccine B. Vaccine Choices: Vaccine A: Protects against a common and moderately severe seasonal flu that affects a large portion of the population every year. Vaccine B: Protects against a rarer but more severe disease that has recently emerged and has the potential to become a significant health threat. Case Study: Small Town Clinic's Vaccine Decision Costs: Both vaccines cost the same, and the clinic's budget allows for the purchase of only one. Benefits: Vaccine A: Could prevent hundreds of cases of the seasonal flu, reducing overall sickness in the town and keeping the workforce healthy. Vaccine B: Could prevent a potentially devastating outbreak of a new disease, although the immediate risk is low. Case Study: Small Town Clinic's Vaccine Decision Economic Choice: Dr. Lee must choose which vaccine to provide, understanding that this choice has implications for the community's health. Decision: After considering the benefits and the risks, Dr. Lee decides to go with: Vaccine A: Given the higher probability of the seasonal flu affecting a large number of people in the town, Dr. Lee chooses to mitigate the immediate and certain risk rather than the potential but uncertain risk of the new disease.