HEALTH ECONOMICS

HEALTH
HEALTH
• It’s a state of
complete physical,
mental and social
wellbeing and not
merely the absence
of disease or
infirmity.
ECONOMICS

• DERIVED FROM TWO GREEK WORDS:

• ‘OIKOS’ which means HOUSE

• ‘NOMOS’ which means RULE

• ECONOMICS IS HOUSEHOLD MANAGEMENT

 DEFINITION OF ECONOMICS
• Economics is the science that deals with the production,
distribution and consumption of commodities.

• Branch of social science that deals with the production,

distribution and consumption of goods and services and
their management.
• The study of how individuals and societies choose to allocate scarce
productive resources among competing alternative uses and to
distribute the products from uses among members of the society.

- World Bank 2001

TYPES OF ECONOMICS

• Microeconomics

• Macroeconomics
MICROECONOMICS

• Microeconomics is the study of individuals, households and firms

behavior in decision making and allocation of resources. It generally
applies to markets of goods and services and deals with individual and
economic issues.
 MACROECONOMICS

• Study of aggregate economic activities such

as:

The economy level of outputs

Level of national income

Level of employment

Generic price level

• Major aspects of economics:

Resource allocation

Distribution

Competition

Production

Trade
 HEALTH ECONOMICS
• The discipline of economics applied to the topic of health is
health economics.
(Mooney 1986)

• Study of distribution of health care.

• Branch of economics concerned with issues related to

efficiency, effectiveness, value and behavior in the production
and consumption of health and health care.
• Health economics is a social system that studies the supply and
demand of health care resources and the effect of health services on a
population. - Medical Dictionary

• Branch of economics concerned with issues related to scarcity in the

health markets.
HEALTH ECONOMICS DEALS WITH

• ALLOCATION OF RESOURCES between various

health activities
• QUALITY of resources used in health care
• The EFFICIENCY with which the resources are
allocated and used for health care purpose
• PROMOTE THE EFFICINECY of health sector
• The EFFECTS of comprehensive health services on
individual and society
 IMPORTANCE OF HEALTH ECONOMICS
To formulate health services

To establish the true costs of delivering health care or

to estimate all real costs

To evaluate the relative costs and benefits of particular

policy options

To determine the economic characteristics of health care and health

related activities
• To estimate the effects of certain economic variables like user charges,
time and distance, costs of accessibility, etc. on the utilization of
health services

• Health, organization and economic development

• To identify and measure health, diseases and basic

needs

• To identify the determinants of growth and economic development,

elements of health expenditure by use of macroeconomics
ASPECTS OF HEALTH ECONOMICS IN INDIA

• Meaning and measurement of health status

• Health policies
• Determinants of health
• Tribal health
• Health care service delivery
• Health care awareness
• Health care resources

• Health sector financing and reforms

• Health insurance

• Hospital income

• Health economic evaluation

 TERMINOLOGIES IN HEALTH ECONOMICS
• GROSS DOMESTIC PRODUCT(GDP): Gross income

generated within the country excluding the money from abroad.

• GROSS NATIONAL PRODUCT(GNP): Gross income

generated within the country and income received from abroad.

• POVERTY LINE: Level of income needed to meet the minimum
standard of living.

• PER CAPITA INCOME: It’s the income per person.

• DEMAND: An economic principle that describes a consumers desire

and willingness to pay a price for a specific good/ service.

• SUPPLY: A fundamental economic concept that the total amount of a

specific good or service that is available to consumers.
• SCARCITY: When demand overcomes the supply, the scarcity arise.

• COST: Refers to the amount of money spent on health services under the
various heads of account.
• ACCESS TO HEALTH CARE : The degree to which individuals are
inhibited or facilitated in their ability to gain entry to and to receive
care and service from health care system.

• ATTITUDE TO HEALTH: Public attitude towards health, disease and

the medical care system.

• BENEFICIARY: Any person, either a subscriber or a dependent,

eligible for service under health plan.
• CLINICAL EFFECTIVENESS: The application of intervention which
have been shown to be efficacious to appropriate patients in a timely
manner to improve patient’s outcomes and value for the use of resources.

• CONSUMER PRICE INDEX: It’s a monthly measure of the average

change in the prices paid by the consumers for a fixed market basket of
goods and services. It shows the trends in the medical care prices based
on the specific indicators of hospital, medical, dental and drug prices.
• DRUG COSTS: The amount that a health care institution or hospital pays
for its drugs.

• FINANCIAL MANAGEMENT: The obtaining and management of funds

for institutional needs and responsibility for fiscal affairs.

• FEES AND CHARGES: Fees is a charge for a service rendered, while

charge is the amount asked for a service by a health care provider.

• HEALTH CARE SECTOR: Economic sector concerned with the provision,

distribution and consumption of health care services and related products.
CONCEPTS RELATED TO HEALTH
ECONOMICS
• DEMAND: Demand is the amount of a good that consumers
are willing and able to buy at a given price.

• Demand refers to how much(quantity) of a product or service is

desired by the buyers. The quantity demanded is the amount of
a product people are willing to buy at a certain price.
• SUPPLY: The amount of goods producer are willing and able to
sell at a given price.

• Supply represents how much the market can offer.

• Supply and Demand is one of the most fundamental concepts of

economics.
PRINCIPLES OF THE LAWS OF
SUPPLY AND DEMAND
• THE LAW OF SUPPLY
At higher prices, producers are willing to offer more
products for sale than at lower prices.
The supply increase as prices increase and decreases
as prices decrease.
Those already in business will try to increase
production as a way of increasing profits.
 THE LAW OF DEMAND

People will buy more of products at a lower price than at a

higher prices.

At a lower price more people can afford to buy more goods and
more of an item frequently than that can at a higher price.

At lower prices, people tend to buy some goods as a substitute

for more expensive goods.
SHIFT UP AND DOWN OF SUPPLY AND
DEMAND
Because of:

Competition for a good or service

Technological advances

Increase in the costs of materials used to make a product

Change in consumer preferences

Shortage of goods or services

THE DEMAND FOR HEALTH CARE
SERVICES
• Individuals choice of medical care

• FACTORS INFLUENCING HEALTH CARE DEMAND

Changes in the age structure

Changes in consumer attitudes

Increase in the real income

Advances in medical technology

REQUIREMENTS OF HEALTH SERVICES
Economy : services should be inexpensive

Effectiveness

Efficiency

Value for money

Equity

Ethical issues
FACTORS INFLUENCING HEALTH CARE SUPPLY

Number of sellers

Resource prices
 HEALTH CARE COSTS
• COSTS:
 Total money, time and resources associated with a purchase or
activity
 Usually measured in money, time or energy, expense or
expenditure outlay
COSTS RELATED TO HEALTH PROBLEMS

1. DIRECT COSTS: Costs borne by the health care system,

community and patient's families in addressing the illness.

2. INDIRECT COSTS: Mainly productivity losses to society

caused by the health problem or disease.

3. AVOIDED COSTS: Costs caused by a health problem or

illness which are avoided by a health care intervention.
4. COST EFFECTIVENESS: The point at which the
minimum amount of input is used to achieve a given
output.

5. COST OF ILLNESS: The personal cost of acute or

chronic disease.
 HEALTH CARE COSTS
• The actual costs of services related to the delivery of health care,
including the costs of procedures, therapies and medications.

HEALTH EXPENDITURE
• Amount of money spent by individuals, groups, nations or public or
private organizations for total health care and or its various
components.
FACTORS INFLUENCING HEALTH CARE COSTS
 Greater demand for services
 New technology
 Cost shift due to under funded public programs
 Government Regulation and mandates
 Increased chronic illnesses
HEALTH ECONOMICS: EVALUATION METHODS
• ECONOMIC EVALUATION:

• Comparative analysis of alternative

courses of action in terms of

both their costs and outcomes

or consequences.
EVALUATION METHODS/TOOLS OF ECONOMIC
ANALYSIS
COST BENEFIT
ANALYSIS
• Systematic approach for
estimating the strengths and
COST MINIMISATION ANALYSIS
weaknesses of
alternatives(calculating and
comparing benefits and costs of a
policy or alternative)
COST EFFECTIVENESS COST UTILITY ANALYSIS
ANALYSIS
• The net gain in health or reduction • Estimates the ratio between the cost
in disease burden from a health of a health related intervention and
intervention in relation to cost.
then benefit it produces in terms of
• It expresses the net direct and
the number of years lived in full
indirect costs and cost saving in
health condition by the beneficiaries.
terms of a defined health outcome.
COST CONTAINMENT
 COST CONTAINMENT
Business practice of maintaining expense levels to prevent
unnecessary spending or thoughtfully reducing expenses to
improve profitability without long term damage to the company.

It refers to effective an efficient delivery of services while generating

•
needed revenues for continued organizational productivity.

Its the responsibility of every health care provider.

 COST CONTAINMENT IN HEALTH
CARE

• The process of controlling the expenses required to operate an

organization or perform a project within preplanned budgetary
constraints.

• Important management function that helps to keep costs down to only

necessary and intended expenses in order to satisfy financial targets.
• STRATEGIES:

Understanding what is required to remain financially sound.

Knowing costs and reimbursement practices.

Capturing all charges in a timely fashion.

Using time efficiently.

Discussing the cost of care with patients.

Meeting patient rather than provider needs.

Evaluating cost effectiveness of new technologies.

Predicting and using nursing resources efficiently.

 COST CONTROL

• Practice of identifying and reducing business expenses to

increase profits, and it starts with the budgeting process.
NURSES ROLE IN HEALTH ECONOMICS
a) Knowledge of health care trends.

b) Knowledge about budget.

c) Understand the health care market.

d) Understand the financial responsibilities in health care.

e) Understand the economic status of health care.

f) Understand the cost of nursing services.

g) Understand the methods of payment for health care.