Health economics is a branch of economics concerned with issues related to efficiency, effectiveness, value and behavior in the production and consumption of health and healthcare.

1. Concepts in
Health Economics
Dr. Aparna Sen Chaudhary
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2. Contents
 Introduction
 Health Economics
 Microeconomics
 Macroeconomics
 Health Economic Evaluation - Scope
 Economic Evaluation: Indian perspective
 Articles on Economic Evaluation in India
 Summary
 References
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3. Introduction
What is Economics ?
The Economics is the science that deals with the consequences of
resources scarcity.
What is Health?
According to World Health Organization’s (WHO) “Health is 'a
state of complete physical, mental and social well being and not
merely the absence of disease or infirmity”
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4. Introduction
Health care Dilemma
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DEMAND
EFFECTIVE
DON’T KNOW
INEFFECTIVE
SUPPLY
Increasing
expectations
Technological
AdvancementDemographic
changes

5. Health Economics
What is Health Economics ?
Health economics is a branch of economics concerned with
issues related to efficiency, effectiveness, value and behaviour in
the production and consumption of health and health care
In simple words, study of all the financial aspects of health care
system
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6. Health Economics
It concerns
1. Quantification of the resources used in health service delivery
over a period of time
2. Efficiency with which resources are allocated and used for
health purposes
3. Effect of various health services upon health and well-being
of the population.
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7. Health Economics
Importance
◦ To formulate health services
◦ To establish the true costs of delivering health care
◦ To evaluate the relative costs and benefits of particular policy
options
◦ To estimate the effects of certain economic variables on the
utilization of health services
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8. Health Economics
All of these are considered as economic goods in health
care
 Health and medical care
 Health as a private or a public good
 Measurement of health
 Investment aspects of healthcare industry
 Burden of diseases
 Effect of healthcare provision
 Choice of technology in healthcare system
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9. Health Economics : Relevance
 Health Economic Analysis will help
◦ Directly
1. Clarify the choices for health policy
2. Choosing among different health services
3. Decide what to buy and how to pay for it
4. To evaluate the end results of such consumption
◦ Indirectly
1. Decision between out of pocket payment or insurance
2. Population health and welfare
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10. Health Economics : Concepts
Models of Economics
Macro Economics
• Study of Total Economic
Process rather than one of
its parts.
• Implies study of process of
production, consumption
and distribution of goods
and services for economy
as a whole.
Micro Economics
• Study of consumption,
production and
distribution aspects of
economic activity which is
undertaken by an
individual/organization.
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11. Health Economics – Concepts
Microeconomics
Microeconomics is the study of individuals, households and firms'
behaviour in decision making and allocation of resources towards
any health need.
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12. Microeconomics - The costs in Healthcare
What is Cost ?
Defined as the value of resources used to produce something;
including a specific health services or set of services
The cost of using a resource in a service or treatment is not just
the price paid for that resource but also include the benefit
foregone by not choosing the alternative.
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13. The costs of Healthcare
Types of Cost (Inputs)
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Direct Cost Related to the use of resources as a result of the
treatment and healthcare process
Indirect Cost Related to the “losses” to the society incurred as
a result of the impact of a disease, treatment
Intangibles Related to the distress, suffering, anxiety and
impact on quality of life resulting from illness and
poor health

14. The costs of Healthcare
Types of Resources
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Recurrent cost
• Used up in the course of
year
• Purchased regularly
• Example
• Personnel
• Supplies
Capital cost
• Last longer than a year
• Example
• Vehicles
• Equipment
• Buildings

15. The costs of Healthcare
Opportunity Cost
◦ Central notion in economic analysis
◦ Concept – Rupee spent on “A” is Rupee denied to “B”
◦ Plays a crucial part in ensuring that scarce resources are used
efficiently
Example –
Two interventions – A cancer screening programme (A)
A smoking cessation programme (B)
Only one can be chosen depending upon “Number of Life years added”
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16. The costs of Healthcare
 Total cost
◦ Sum of all the expenditure (or sum of all opportunity costs) during some
specific period.
 Average cost
◦ Total cost divided by the number of units provided or produced.
◦ Example – Average cost of OPD treatment at PHC per patient per day
 Marginal cost
◦ An additional cost of producing one unit of output or expanding a
programme
◦ Example – addition cost of adding Hepatitis B Vaccine in universal
immunization programme
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17. The costs of Healthcare
 Out of Pocket Expenditure
◦ Direct outlay of cash on medical expenses that may or may not be later
reimbursed from a third-party source.
 Catastrophic Health Expenditure
◦ Out-of-pocket spending for health care that exceeds a certain proportion
of a household's income with the consequence that households suffer
the burden of disease.
 Fiscal deficit
◦ A fiscal deficit occurs when a government's total expenditures exceed the
revenue that it generates.
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18. Microeconomics - Economic Evaluation
 Economic evaluation is the comparative analysis of alternative
courses of action in terms of both costs (resource use) and
consequences (outcomes, effects) in order to assist policy
decision. (Drummond 2005)
 Economic evaluation is not “choosing the cheapest’’ it is about
choosing best ‘value for money’ within constraints
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19. Economic Evaluation
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20. Economic Evaluation
Steps
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Deciding Upon the Study Question
Assessment of Costs and Health Effects
Adjustment of timing
Adjustment for uncertainty
Making a decision

21. Economic Evaluation
Types of Economic Evaluation
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Cost
Minimization
Analysis
(CMA)
Cost
effectiveness
Analysis
(CEA)
Cost-utility
Analysis
(CUA)
Cost benefit
Analysis
(CBA)

22. Economic Evaluation
Cost Analysis
 Cost analysis is a resource tool for financial management in
hospital or department.
 It is an economic evaluation technique that involves the
systematic collection, categorization, and analysis of program or
intervention costs, and cost of illness.
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23. Economic Evaluation
Cost Minimization Analysis
◦ Compares the costs of different interventions that are assumed to
provide equivalent benefits.
◦ Decision hinges - finding the least expensive way of obtaining the
health benefit.
◦ Example – comparison between a Generic drug and its branded
equivalent
◦ Advantage – simple and easy to interpret
◦ Disadvantage – no longer considered “valid”
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Background - Prescription of costly brands adversely affects expenditure on
health care system by patients. Therefore, this cost-minimization study was
conducted among all available PPIs to help doctors in selecting the cheapest
available option.
Methods: The cost of all PPIs brands available was collected and cost range,
cost ratio and mean cost of the generic drug was calculated.
Results: Pantoprazole is most commonly available with 494 brands. Highest
cost ratio for oral PPIs is for omeprazole 20 mg and lowest is for omeprazole
10 mg. This variation is mostly due to large numbers of brands available for
omeprazole.

25. Economic Evaluation
Cost-Effectiveness Analysis
o Net gain in the health or reduction in disease burden from a health
intervention in relation to cost.
o Benefits are measured in “natural units”
◦ e.g. life-years, mm Hg for BP, HbA1c for diabetes, Quality adjusted life years
(QALY) etc.
o Cost effective ratio = Cost/ Number of lives saved
o Advantage – least cost way of achieving the objective to see how both cost
and choice of technique
o Disadvantage – lack of ability to compare interventions across the health
sector i.e., costs can be compared but outcomes cannot.
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Background - Evaluate the cost effectiveness of implementing IMNCI program in
India from a health system and societal perspective.
Methods:
• Using a 15-years time horizon from 2007 to 2022 a model was created.
• Data on costs and effects as found from a cluster-randomized trial was used to
assess effectiveness of IMNCI program in Haryana state.
Results:
• Implementation resulted in a cumulative reduction of 57384 illness episodes,
2369 deaths and 76158 DALYs among infants.
• Incurred an incremental cost of USD 34.5 (INR1554) per DALY averted, USD 34.5
(INR 1554) per life year gained, USD 1110 (INR 49963) per infant death averted.

27. Economic Evaluation
Incremental cost-effectiveness ratio (ICER)
oWhen a new intervention is found to be more effective but more
costly than the comparator
oICER =
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Cost of A – Cost of B
Effectiveness of A – Effectiveness of B

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30. Economic Evaluation
Cost-Utility Analysis
◦ Compare the costs and the benefits of health technologies
◦ Benefits are measures in HEALTHY YEARS
◦ Multidimensional – incorporates Quality along with Quantity of Life
◦ Measure of benefit – Quality adjusted life years (QALY); Disability
adjusted life years (DALYs)
◦ CUA =
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Cost
QALY gained or DALYs averted

31. Economic Evaluation
Cost-Utility Analysis
o Advantages –
1. To measure health care costs and interventions
2. To evaluate the effect of a nursing intervention on patient outcomes
when one of these outcomes is QOL
3. To assess cost utility for both medical interventions and nursing
interventions
4. To compare current practice and the change in practice need
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Source: eupati.eu/health-technology-assessment/measuring-health-related-quality-life-hrqol

33. Economic Evaluation
Cost-Benefit Analysis
◦ Values the benefits in money terms rather than DALYs
◦ This allows a direct comparison between the costs of the
intervention and the value of the benefits to see which is higher
◦ In practice it is difficult to value health benefits in money terms.
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Background – Aims to estimate discounted net benefits and internal rate of return
(IRR) to evaluate the economic feasibility for elimination of KA.
Methods –
• Cross-sectional data were collected to estimate societal costs of and benefits
from KA interventions with a 13-year project period.
• Total costs was estimated based on the unit cost of inputs used for
interventions.
• The benefits are derived from productivity change and resources saved due to
reduction of KA incidence.
Results:
• A total discounted net benefit was Nepalese Rupees (NRs) 65,287 million with
35% IRR.
• Every rupee invested in KA intervention at present will yield NRs 71 in future.

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Type of Analysis Cost Consequences Results
Cost Minimization Monetary Equivalent outcome
in all respect
The least cost
alternative
Cost Effectiveness Monetary Qualitative nonmonetary
Units.
E.g.: Reduced morbidity
or years of life gained or saved
Cost per unit of
consequence or cost
per years of life
gained/saved
Cost Utility Monetary Valued as Utility
E.g.: Quality adjusted
life year (QALY)
Cost per unit of
consequence or cost
per QALY
Cost Benefit Monetary As Cost Utility but valued in
money
Net cost-benefit ratio

36. Health Economics – Concepts
Macroeconomics
 Defined in conventional terms as the "sum total of economic
activity, dealing with the issues of growth, inflation and
unemployment”.
 Macroeconomics provides models to help countries
understand and influence economic growth and to develop
economic policy
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37. Macroeconomics
 National Health Programmes
1. Mobile Mamta Diwas (Gujarat)
◦ In tribal areas of Valsad district
◦ To cover the unreached areas
◦ Consultation with field level workers, Medical Officers and Taluka
Health Staff.
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38. Macroeconomics
 National Health Programmes
2. Provision of Comprehensive Primary Healthcare (Kerala)
◦ At a Primary Health Centre, Kallikkadu
◦ Appointed health volunteers (50 houses)
◦ Focus on prevention and promotion and community-level
interventions.
◦ The annual action plan is prepared based on family health survey.
◦ Full immunisation and ANC service coverage, IEC - BCC – 347 group
talks, 12 group gatherings, 13 health education classes
communications conducted.
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39. Macroeconomics
 National Health Programmes
3. Integrated Referral Transport System (Madhya Pradesh)
o Launched in 2013-14
o Mobile medical units
o Janani express (JSSK)
o Sanjeevani-108 – Emergency Medical Ambulance Service
o Doctor Express – doctors at CHC
o 104 health Helpline – for access to trained paramedics and
doctor
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40. Health Economics Evaluation: Scope
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S No Health Policy Issues Relevancy Of Economics
1 Health and economic
development
• To identify and measure health and
diseases ,basic needs.
• To identify the determinants of growth
and economic development, elements
of health expenditure.
2 Finance aspects of health
sector
• To find out the source of health care
financing.
3 Demand analysis • To analyse the determinants of
demand, individual and supplier
induced behaviour, time, cost.

41. Health Economics Evaluation: Scope
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S No Health Policy Issues Relevancy Of Economics
4 Supply analysis • To determine the physical resources
and costs, estimation of short term and
long term cost curve
5 Health manpower • To determine the labour market and
demand for & supply of health workers,
remuneration and other determinants
of behaviour, productivity.
6 Financial management • Budgeting system and accounting

42. Health Economics Evaluation: Example
 National Commission on Macroeconomics and Health divided the high
burden diseases in India under
1. Communicable Disease
2. Non-communicable Disease
3. Other Non-communicable Disease
◦ Likelihood of affecting poor disproportionately
◦ Impose to be a serious health burden in absence of interventions
◦ Possibility to drive people into financial hardship
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44. Health Economics Evaluation: Example
 Budgetary Allocation vs. Burden of Disease
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45. Economic Evaluation: Indian Perspective
 Indian health care sector is one of the fastest growing industries with
an annual growth rate of 17% (2011-2020).13
 Total health care spending is projected to rise at an annual rate of
more than 12% (from $96.3 billion in 2013 to $195.7 billion in 2018)13
 Only around 10% of the population is covered through health
financing schemes.13
 Challenge is promoting health using improved and cost-effective
modalities.13
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46. 7/8/2018
46Source: National Health Accounts Technical Secretariat. National Health Accounts. Estimates for India -2014-15. National Health Systems Resource
Centre. Ministry of Health and Family Welfare. Government of India. New Delhi.2017

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Source: National Health Accounts. Estimates for India -2014-15. National Health Systems Resource Centre. MoHFW. GoI.2017

48. Economic Evaluation: Indian Perspective
 Health Insurance
◦ Is defined as a health financing mechanism that involves distribution
of financial risk associated with the variation of individual’s health
care expenditures by pooling costs over time (prepayment)and over
people.19
◦ serves as a means to protect households from the risk of medical
expenses that can be large, relative to modest incomes.19
 In 2013-14, 40.8 crore individuals were covered by health
insurance in India (about one-third of India’s population).
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49. Economic Evaluation: Indian Perspective
 Health financing schemes
◦ According to System of Heath Accounts 2011 (SHA 2011) and
National Health Accounts (NHA) India guidelines, following five
types of health financing schemes are considered health insurance
expenditures in India.19
1. Social health Insurance
2. Government based voluntary insurance (Government Financed Health
Insurance Schemes)
3. Employer based insurance - other than enterprises schemes (Private
Group Health Insurance)
4. Other primary coverage schemes (Private Individual Health Insurance)
5. Community based health insurance
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50. Economic Evaluation: Indian Perspective
 Health Insurance
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Health Insurance Schemes
Social health Insurance • Central Government Health Scheme (CGHS),
• Employee State Insurance Scheme (ESIS),
• Ex-servicemen Contributory Health Scheme (ECHS),
Government based
voluntary insurance
• Rashtriya Swasthya Bima Yojana (RSBY),
• Vajpayee Aarogyashree and Yeshasvini
Employer based insurance • Provided by private and public insurance companies
Other primary coverage
schemes
• individual health insurance policies sold by private and
public insurance companies,
Community based health
insurance
• operated/organized purely by communities’
themselves/ NGOs/cooperative societies/ workers
unions or/and those operated by these organizations.

51. Economic Evaluation: Indian Perspective
1. Rashtiya Swasthiya Bima
Yojana (RSBY)
2. Employment State
Insurance Scheme (ESIS)
3. Central Government Health
Scheme (CGHS)
4. Aam Aadmi Bima
Yojana(AABY)
a) Pradhan Mantri Jan Dhan Yojana
(2014)
b) Pradhan Mantri Sukanya Samriddhi
Yojana (2015)
c) Pradhan Mantri Suraksha Bima
Yojana (2015)
d) Pradhan Mantri Jevan Jyoti Bima
Yojana (2015)
e) Atal Pension Yojana (2015)
f) AYUSHMAN BHARAT (2018)
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Financing Schemes in India

52. Economic Evaluation: Indian Perspective
 Health Insurance
o Ayushman Bharat - National Health Protection Mission
o Benefit cover of Rs. 5 lakh per family per year (10 crore families)
o Portable across the country and a beneficiary covered will be allowed
to take cashless benefits from any public/private empanelled hospitals
across the country.
o Subsume the on-going centrally sponsored schemes - Rashtriya
Swasthya Bima Yojana (RSBY) and the Senior Citizen Health Insurance
Scheme (SCHIS).
o Major impact on reduction of Out of Pocket (OOP) expenditure
 Increased benefit cover to nearly 40% of the population,
 Covering almost all secondary and many tertiary hospitalizations.
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• 104 articles were reviewed
• Of them, majority (64%) were cost-effectiveness analyses followed by cost-
utility (30%) and cost-benefit analyses (6%)
• 26% focused on public health programme, 19% on vaccines and 12% on
screening programme. 58% were addressed to communicable disease
• 60.5 % on preventive measures taken in primary care settings
• Studies showed that few interventions under various National Health
Programmes were found to be cost-effectiveness
• HIV/AIDs, Immunization, Tuberculosis
• School based screening programmes
• Auto-disposable syringes
• Drawback – Majority of the studies from the “payers perspectives”
• Conclusion – Sparse and low quality evaluation studies in India.
Appl Health Econ Health Policy.2015

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Objective: To evaluate the effects Vajpayee Arogyashree scheme covering tertiary
care for people below the poverty line in Karnataka.
Main Outcome : Out-of-pocket expenditures, hospital use, and mortality.
Participants: 22796 BPL; 8680 APL households in 300 villages where the scheme
was implemented and 21767 BPL; 6866 APL households in 272 neighbouring
matched villages ineligible for the scheme.
Results:
1. Among BPL household the mortality rate was 0.32% in eligible household
eligible compared to 0.90% among ineligible households (p<0.001)
2. Significant reduction in out-of-pocket expenditure in eligible households on
admission in a tertiary care hospital (64% reduction)
3. 44.2% increase in hospital approach.

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57. Summary
• Health economics - Study of all the financial aspects of health care system
• Microeconomics – Healthcare at an individual/organizational level
• Macroeconomics – Healthcare at national and international level
• In India, only 10% of the population is covered under any health financing
schemes with only one-third of the population having health insurance
(public/private)
• Types of insurances under government
• Articles on economic evaluation of healthcare interventions and schemes.
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58. References
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3. Nath A. Health Economics: Importance For Public Health In India. JK
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4. Philip M. Health Economics in Development. The World Bank. Washington DC. 2004:20.
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USA. Blackwell Publishing, Inc. 2005.
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expenditure: An empirical assessment from the Indian states. Cogent Economics &
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8. Cunningham SJ. Economic evaluation of healthcare — is it important to us?. British Dental
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59. References
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11. Prinja S, Bahuguna P, Mohan P, Mazumder S,Taneja S,Bhandari N. Cost Effectiveness of
Implementing Integrated Management of Neonatal and Childhood Illnesses Program in
District Faridabad, India. PLOS ONE.2016:DOI:10.1371/journal.pone.0145043.
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subcontinent: an example of Nepal. J Vector Borne Dis.2010;47:127-39.
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60. References
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61. Thank You
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62. Economics
Models of Economics
Positive Economics
• Economic statements describing how things are.
• Can be established by empirical research
Normative Economics
• Economic statements that prescribe how things should be.
• Establishing the means by which socially desirable outcomes can
be achieved
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63. Health Economics
 Healthcare is limited by the total amount of resources available as
well as through competition with other areas
 There are three main theories which have been proposed to assist the
allocation of resources
◦ The Utilitarian Theory- healthcare should be distributed so as to maximise
the health of society (e.g. increase life expectancy; reduce infant
mortality) without regard to how that good is actually distributed.
◦ The Egalitarian Theory - everyone has a claim to the amount of healthcare
resources giving everyone equal health rights.
◦ The Rawlsian Theory – each person has an equal right to the system. So
when making choices, those who are least advantaged should have
maximum benefit.
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