210608L - INTRODUCTION TO HEALTH ECONOMICS

Lecture to the Health Economics module of the Diploma of Clinical Research Coordinators by Omar Hasan Kasule Sr Professor of Epidemiology and Bioethics June 8, 2021

 

1.0 OVERVIEW OF THR WHOLE COURSE

• Health economics, an integration of medicine and economics, is the application of microeconomic tools to health.
• Economic concepts used in health economics are scarcity, production, efficiency, effectiveness, efficacy, utility, need, want, demand & supply, elasticity, input-output, competition, marginal values (marginal costs and marginal benefits), diagnosis-related group (DRG), service capacity, utilization, equity, the value of money (present and future), and compounding & Discounting.
• Economic analysis uses models and hypothesis testing.
• The assumption of a free/competitive market is not always true in health care because of supplier-induced demand and government regulation.
• Measurements of production costs, health outcomes, the value of human life, and the quality of life are still controversial.
• The purpose of economic analysis is to evaluate projects regarding cost minimization, cost-benefit analysis, cost-effectiveness analysis, and cost-utility. It also plays a role in decision analysis.

 

2.0 ECONOMICS

• Economics is a discipline that deals with the scarcity of resources.
• Descriptive economics is used to describe medical care (such as the number of physician visits or the number of bed-days of hospitalization) or health status (such as morbidity, mortality, and functional capacity).
• Explanatory economics deals with demand and supply issues in health care, average and marginal costs of health interventions, and markets (competition and monopoly).
• Evaluative economics analyzes the allocation of healthcare resources in terms of efficiency, accessibility, equity, and fairness).

 

3.0 HEATH ECONOMICS

• Health economics is the application of microeconomic tools to health.
• Health economics studies the supply and demand of health care services and their effects on the population.
• Measurement of quality and health care rationing are practical manifestations of the integration of medicine and economics.

 

4.0 ECONOMIC APPRAISAL/EVALUATION

• Economic appraisal is the employment of economic tools to make allocation decisions.
• There are controversies about whether it always works in health markets.

 

5.0 HEALTH CARE ETHICS

• Healthcare ethics are principles used to solve the conflict between healthcare and economics. Healthcare wants to maximize health benefits.
• Economics wants to minimize the utilization of scarce resources of to use them in the most efficient way which translates in practice into restricted health care delivery.

 

6.0 PROBLEM OF AGENCY IN HEALTH ECONOMICS

• Agency distinguishes healthcare from other markets.
• Economic transactions in health have a special feature in that the physician acts as the agent of the patient.

 

7.0 ECONOMIC TERMINOLOGY - 1

• Efficiency is the ratio of input to output. It is also defined as the cost per unit produced. High efficiency is achieved when a service is rendered with the use of minimum resources. Inefficiency is a waste of resources.
• Effectiveness is the ability to accomplish a defined task. It is the degree to which organizational goals and objectives are achieved.
• Efficacy, a measure of outcome, is the net impact of an intervention under ideal conditions. Efficacy assesses outcomes under idealized conditions.
• An externality is said to occur when someone external to the market transaction (neither a buyer nor a seller) is directly affected by the transaction.
• Utility is economic jargon for satisfaction. A good is desired because it generates utility. If goods are of the same price the consumer will prefer those that provide higher utility.

 

8.0 ECONOMIC TERMINOLOGY - 2

• The need is defined based on objective criteria. Usually, professionals define the medical needs of a patient. In recent years the patient’s opinion has become increasingly involved in such discussions. Needs cannot always be met in full.
• Want is subjective. It is an individual’s own assessment of health ‘wants’.
• Demand is the result of an individual seeking healthcare and converting a health want into a health demand.
• Supply is the response to the demand by supplying the goods or services demanded.
• Service capacity is the production frontier of a medical facility.
• Utilization is the amount of capacity actually used.
• Equity is a measure of justice or fairness but does not always translate into equality.