Week 1 Introduction To Health Economics PDF

Health Economics Health Economics What is Health Economics? 1. What is “Economics”? 2. What is “Health”? 3. What is “Health Economics”? The Economics of Healthcare https://www.youtube.com/watch?v=cbBKoyjFLUY Economics is about … Limited resources Resources are scarce Unlimited “wants” Therefore invo...

Health Economics Health Economics What is Health Economics? 1. What is “Economics”? 2. What is “Health”? 3. What is “Health Economics”? The Economics of Healthcare https://www.youtube.com/watch?v=cbBKoyjFLUY 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 … Limited resources Unlimited “wants” Choosing between which ‘wants’ we can ‘afford’ given our resource ‘budget’ Economics in a nutshell is about The study of how scarce resources are allocated to fulfill infinite wants of consumers Good ‘B’ The study of how society decides what, how and for whom to produce Economics is about choice Good ‘A’ Resources Budget 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 Economics Health Economics Health Economics 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) What is Health Economics?? Health Economics 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? 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? Why Study Health Economics? The challenge is how can we improve our performance By spending less and Getting better outcomes 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.) 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. 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 Care D. Supply of health care) Health? (other than Health Care C. Demand for G. Planning, budgeting, regulation mechanisms 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 OPPORTUNITY COST EFFICIENCY MARGINAL ANALYSIS EQUITY Key Economics Concepts SCARCITY MARKET DEMAND SUPPLY Key Economics Concepts and Principles Equity Efficiency Opportunity cost Scarcity Concept 1: Scarcity Key Economics Concepts 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 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 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. 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. Concept 2: Opportunity cost Case Study Scarcity in Healthcare 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 Concept 2: Opportunity cost Good ‘B’ “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. Case Study Opportunity Cost in Healthcare 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 ( 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) Concept 3: Efficiency Allocative Efficiency Producing the pattern of output (supply) that matches the pattern of consumer want (demand) – Market efficiency 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. 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. 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. 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. E Price/ Cost Quantity Demand Supply Efficiency and ‘the market’ Price/ Cost Equilibrium Price PE QE Supply Quantity Demand 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. 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 Concept 4: Equity 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 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. Case Study: Small Town Clinic's Vaccine Decision How to Apply Health Economic Thinking and Analysis in Decision-Making 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 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. 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. CHAPTER 4 Demand for Health and Medical Care Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com. LEARNING OUTCOMES ▪ Define the concept of elasticity of demand ▪ Identify the private, external, and social demand for health services ▪ Explain how time costs influence the demand for health services ▪ Explain the concept of Supplier-induced demand in healthcare Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ Explain the law of demand (model) and factors influencing demand DEMAND & THE LAW OF DEMAND IN HEALTHCARE ▪ Demand is: the quantity of healthcare products or services customers are willing and able to buy at different prices, when all other factors are held constant (ceteris paribus) ▪ The Law of Demand (Model) states that the “higher the price, the lower the quality demanded” and vice versa. ▪ Only ‘price’ changes for the law of demand also known as “quantity demanded.” ▪ The other factors that don’t change include: ▪ income, tastes and preferences, prices of other related goods & services, expectations ▪ If any of the other factors change: ▪ the demand curve will shift to the right if demand increases or ▪ the demand curve will shift to the left if demand decreases Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ ▪ ▪ ▪ Demand Curve for Physician Visits The Law of Demand P1 P0 q1 q0 Price changes lead to movements along D curve Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com Price THE DEMAND RELATIONSHIP Quantity Demanded versus Demand Curves d1 and d 2 show the quantity demanded increasing as the price decreases. Each curve represents a separate level of demand. With reference to curve d1, curve d2 represents an increase in demand, not just an increase in quantity demanded. Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com © Jones & Bartlett Learning. Importance of Demand for Health care Demand analysis seeks to identify which factors are most influential in determining how much care people are willing to purchase Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com The major purpose of demand analysis for medical care is to determine those factors which on the average, most affect a persons utilization of medical services Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com Factors Influencing Demand Factors Influencing Demand Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com Change in the price Change in Factors other than price CHANGES IN DEMAND ▪ Change in the price ▪ Exogenous variables cause a shift in the entire demand curve or a change in demand ▪ Chang in Factors other than price ▪ Income ▪ Prices of other related goods and services ▪ Substitutes ( Brand-name drugs versus Generic drugs ) ▪ Complements (Physiotherapy and Pain Relief Medication) ▪ Tastes and Preferences ▪ Expectations Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ Endogenous variable – out-of-pocket price – causes a movement along a given demand curve, or a change in the quantity demanded Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com PRICE ELASTICITY OF DEMAND PRICE ELASTICITY OF DEMAND ▪ Measure of the responsiveness of quantity demanded to a price change at a given point or between two given points on a given demand curve Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ It attempts to measure responsiveness (change) when the only factor undergoing change is the price of the good or service RESPONSIVENESS OF QUANTITY DEMANDED TO PRICE FOR DIFFERENT SLOPED DEMAND CURVES Figure 4-4 Responsiveness of quantity demanded to price for different sloped demand curves. Curve BC shows a greater responsiveness of quantity demanded to price than curve AD. Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com © Jones & Bartlett Learning. Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com INSURANCE ARRANGEMENTS and DEMAND ALTERNATIVE INSURANCE ARRANGEMENTS ▪ Indemnity contract sets a fixed per-unit amount up to which the insurer will pay in the event of a service being used; the individual is responsible for price above the fixed amount ▪ Deductibles, on the other hand, are amounts that the insured must pay out-ofpocket before the insurance company starts to pay its share Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ Coinsurance is a payment by the patient of a proportion of the charged price; insurance pays the balance DEMAND CURVE WITH NO INSURANCE (DN), WITH 50 PERCENT COINSURANCE (D50), AND WITH A 20 PERCENT COINSURANCE (D20) © Jones & Bartlett Learning. Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com When there is a coinsurance rate, Dn also represents the relation between the quantity demanded and the outof-pocket price. IMPLICATIONS OF HEALTH CARE ▪ The less a situation calls for immediate action, and the greater the relevance of substitutes, the less steeply sloped is the demand curve for medical care ▪ A reduction in consumption of medical care can lead to a deterioration in health; therefore, analysis of medical care demand may be best over multiple periods Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ Medical care should be viewed as a spectrum of services and goods, rather than as a good or service only sought and consumed in an emergency DEMAND FOR MEDICAL CARE ▪ There is an inverse relationship between price, especially out-of-pocket price and the quantity demanded of health care services Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ Price of medical care is relevant to the demand for many healthcare services, especially when viewed in terms of the impact of insurance on the utilization of healthcare services TYPES OF DEMAND FOR HEALTH CARE SERVICES ▪ E.g. Regular Check-Ups: visiting a Family physician periodically to monitor your condition. ▪ External demand – the demand by the other members of society for an individual to consume health care services ▪ E.g. Public Health: Vaccinations reduce the spread of infectious diseases, protecting public health and reducing healthcare costs for society as a whole. ▪ Community or social demand is the sum of internal and external demands Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ Private or internal demand – an individual’s demand for his or her own consumption of health care services SOCIAL DEMAND FOR MEDICAL CARE At the price of P1, individual A would purchase Q1 units of medical care. But because society values A's use of medical services, society determines that at price P1 individual A should consume Q2 units of medical care. As a result, subsidies or other actions must be provided to increase A's demand for medical services to society’s level of Q2. Societies demand for aid, therefore, is the distance between Q1 and Q2. Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com © Jones & Bartlett Learning. INCREASE IN DEMAND FOR MEDICAL CARE WITH IMPROVED QUALITY OF CARE Demand curve D1 reflects an individual's initial demand for medical care. When the quality of care is viewed as increasing, or improved, then the individual's demand for medical care will shift outwards to demand curve D2, increasing the quantity demanded at each price of medical care. Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com © Jones & Bartlett Learning. DEMAND FOR HEALTH CARE ▪E.g. elective cosmetic procedures ▪Health care can be regarded as a means to an end, such as health – an investment good or service ▪E.g. vaccinations, regular check-ups Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪Health care can be regarded as an end in itself – a consumption good or service TOTAL COST OF A HEALTHY DAY + ▪ The amount of time involved in traveling, waiting, and being examined to obtain a unit of healthcare X ▪ The wages or income that would have been earned during the time spent obtaining care or the value to the person of the activity given up to obtain the care C = (A x W) + (B X P), where C = unit cost to produce one healthy day A = amount of time required to produce 1 unit W = opportunity cost of individual’s time B = amount of purchased inputs required P = price of one unit of purchased input Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ The money cost involved in utilizing healthcare ROLE OF PHYSICIAN in The DEMAND for HEALTH CARE ▪ To undertake treatments upon which their patients have decided ▪ The patient’s demand for health care is now also dependent on the interaction with the physician Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ To act in an advisory capacity and inform patients of their level of health and the activities and treatments that might improve their health AGENCY ROLE ▪ Supplier-induced demand—Potential divergence of interest between the principal and the agent, with the agent having the ability to influence demand for personal gain Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ Perfect agent –Prescribe and/or provide a quantity of medical care such that the patient, if fully informed, would have chosen LIMITS TO SUPPLIER-INDUCED DEMAND ▪ Information sharing among patients, among patients and other providers, or on the Internet limits the degree to which a physician can sway the patient with incomplete or misinformation ▪ The assumption that the physician has perfect information about the patient’s health status and the productivity of medical care is not always realistic Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com ▪ With repeated events, the patient eventually gains information to be used to evaluate health and medical productivity Physician Care Market Simulation Copyright © 2021 by Jones & Bartlett Learning, LLC an Ascend Learning Company. www.jblearning.com In class Activity