students wonder exactly what health economics is. is it about money in health, more health for the same money ? about health in hospitals or health of the country.

1. Dr (Gp Capt retd) Suchitra Mankar
MD

2. Economics - definition
• Best use of available resources against
competing demands - attain given goals.
• Resources- six Ms
• Economics –macro; micro; managerial.

3. Economics
• Macro - GDP; percentage expenditure; policy;
universal coverage; national programs; fund
allocation; budgeting; equality; equity; access etc
• Micro- cost per unit; utility; break even point;
cost of package etc
• Managerial tools to analyze for microeconomics

4. Health Economics-Defn
• A branch of economics concerned with issues
related to allocation of resources for health
and health care
• Also referred to as health financing
• Manpower, time and money key issues
• More money for health; more health for the
money!

5. Why study Health Economics?
• Benefits of economic growth-well known
• Determinants of economic growth
– labour force
– Physical capital
– technological change
– the quality and quantity of labour (human capital)
• extent of education
• level of its health

6. • Healthier workers -work longer, more
productive
• Healthy children better learning abilities &
better educational outcomes
• Higher incomes permit better nutrition, better
health care and, presumably, achieve better
health
• Health Economy

7. • A thousand rupee increase in per capita
health expenditure would lead to a 1.3%
increase in LEB
• A 10% increase in per capita income is
required to increase the LEB by about 2%.

8. Why is health so important?
Prevention Nutrition Dying
Treatment Health Technology
Payment
Sanitation Fertility

9. What is human development?
• Difference between development and growth
• Development for us to achieve goals of humanity,
our own ambitions and what we are all about.
• For this we need education, health, social security,
comfort etc.
• HDI –more to life than income..GDP and HDI position
is not the same

10. Scope of Health economics
• Factors influencing health (other than health care)
• Definition of health and its value
• The demand for health care
• The supply of health care
• Microeconomic evaluation at Treatment level
• Market Equilibrium
• Evaluation at whole system level; and,
• Planning, Budgeting and monitoring mechanisms.

11. Macro HE
• Who is covered
• What services are covered;
• How much of the cost is covered.
• How funds are to be raised and administered
• Broad picture –for direction
• Taskforce on Innovative International Financing for Health
Systems, US$ 44 per capita (unweighted) in 2009, ; US$ 60 per
capita by 2015

12. Data on Macroeconomic Health
Expenditure Indicators-India
• Data now easily available
– Enables better understanding
– Policy direction
– Weightage
– Comparison across years and across ccountries

13. Total Health Expenditure as % of GDP
India Total health expenditure (THE) % Gross Domestic Product
(GDP)
4.8
4.6
4.4
India Total health
4.2 expenditure (THE) %
Gross Domestic Product
4
(GDP)
3.8
3.6
1999 2001 2003 2005 2007 2009
http://apps.who.int/nha/database/ChoiceDataExplorerRegime.aspx

14. Year wise Government vs Private
expenditure as % of THE
90
80
70
60
India General government
50
expenditure on health (GGHE) as
% of THE
40 India Private expenditure on
health (PvtHE) as % of THE
30
20
10
0
1999 2001 2003 2005 2007 2009

15. Total/Govt/Pvt expenditure on Health
3000000
2500000
2000000 Total expenditure on
health
1500000 General government
expenditure on health
1000000 Private expenditure on
health
500000
0
1999 2001 2003 2005 2007 2009

16. Financing Agents
140,000.00
120,000.00
100,000.00
80,000.00
60,000.00 2001
2009
40,000.00
20,000.00
0.00
Ministry of Health Social security Private insurance Non-profit
funds institutions serving
households (e.g.
NGOs)

17. Indian Scenario
• Total Health expenditure increasing
• Private sector 70-80%
• Insurance and Social security increasing
• Equity, access, responsiveness of care
• Microeconomic policies can be planned

18. Micro HE
• Study of how individual units of production
consumption and industry act and react to
change in the macro picture.
• Hospitals, patients, processes, machines, drug
s etc

19. Characteristics of Health Care Industry
• Capital Intensive
• Long gestation periods
• Dynamic, interactive, intangible
• Manpower Shortage
• High Obsolescence Costs
• Complex Business Model
– high risk environment involving human lives
– managing doctor &-corporate management interface

20. Managerial economics
• Resources- Highest output
• Objectives- Minimum Resources
• Objectives and resources-Highest utility
• Utility- capacity to satisfy human need.
• Tools to aid decision making
– Cost analysis
– Production analysis
– Utility Analysis

21. Costs
• Opportunity Cost
• Sunk Costs
• Life cycle costs
• Incremental costs
• Marginal Costs
• Variable Costs, fixed Costs
• Direct costs, Indirect costs

22. Analysis Tools
• Cost effectiveness
• Cost benefit
• Production Curves
• Equi marginal utility
• Indifference curves
• Time dimension
– Decisions in time
– Money value over time

23. Managerial Health Economic Evaluations
• Cost Minimization Analysis
• Cost Effectiveness Analysis
• Cost Benefit Analysis
• Cost Utility Analysis

24. Cost Minimization Analysis
• It is based on prior epidemiological findings.
The technique identifies the least cost
intervention.
• If health effects are known to be equal, only
costs are analyzed and the least costly
alternative is chosen.

25. Cost Effectiveness Analysis
• Cost-effectiveness analysis (CEA) is a technique
for selecting among competing wants wherever
resources are limited.
• Developed in the military, CEA was first applied to
health care in the mid-1960s and was introduced
to clinicians by Weinstein and Stason in 1977
• CEA compares alternatives and measures (in
natural units) the primary objective of the
program (i.e. morbidity reduction, life years
saved, functional ability on a scale).

26. Cost Effectiveness Analysis
• A new strategy is compared with current
practice (the "low-cost alternative") in
calculation of the cost-effectiveness ratio
• CE ratio = Cost of new strategy- cost of existing
strategy/ effectiveness of new- effectiveness
of old

27. Cost Effectiveness Analysis
• Cost effective does not mean that the strategy
saves money
• CEA is only relevant if the new strategy is both
more effective and more costly
• For simplicity, we will assume that doing
nothing has no cost and no effectiveness.

28. Cost Effectiveness Analysis
• To lengthen life in patients with heart disease-
aspirin and blockers vs the more
complex, more expensive, and more effective
(e.g., medication plus cardiac
catheterization, angioplasty, stents, and
bypass).
• CEA is about marginal/ incremental) costs and
benefits.

29. Cost Benefit Analysis
• CBA estimates and totals up the
equivalent money value of the benefits
and costs to the community of projects.
• Jules Dupuit, a French engineer proposed
this in an article in 1848

30. Cost Benefit Analysis
• All aspects of the project- positive or negative
must be expressed
• If benefits not expressable in rupees, some
value that the beneficiaries consider as good
must be considered
• Money must be expressed with time

31. Cost Benefit Analysis
• In cost benefit analysis objectives can be
questioned.
• Establishing a service, a department, full time
employees etc

32. Cost Utility Analysis
• It is a form of cost effectiveness analysis
• Preferred when there are multiple objectives of a
program, when quality of life is an important
outcome, and when quality of life and quantity of
life are both important outcomes.
• Allows comparison of different health outcomes
(prolongation of life, relief of suffering, blindness)
by measuring them all in terms of a single unit —
QALY.

33. Cost Utility Analysis
• Limitation- QALY is partly subjective
• QALY should be
meaningful, valid, reliable, relevant to the
population in question

34. UTILITY ANALYSIS
•Marginal utility
•Diminishing Marginal utility
•Equi Marginal utility
•Indifference Curves

35. PRODUCTION ANALYSIS
• LAW OF VARIABLE PROPORTIONS
• LAW OF RETURN TO SCALE
• PRODUCTION ANALYSIS
– PRODUCTION POSSIBILITY ANALYSIS
– ISO-COST / ISO-QUANT ANALYSIS

36. Problems of Economic Evaluation
• “Efficient is not always sufficient” as the sole
criterion for decision making.
• The economic evaluation techniques are used
inappropriately to impose judgments of
specialists on the whole community.

37. Conclusion
• Study of Health Economics essential for
planning and evaluation
• While complex problems may be worked out
by experts, decision makers require a sound
understanding of health economics
fundamentals
• More health from the money and more
money for health- Economic Imperative

38. Questions