gary hourselt healtheconomics 150219052339-conversion-gate02

HEALTH ECONOMICS

MS. ANCY CHACKOIIND YEAR M.Sc NURSING

GOVT. COLLEGE OF NURSINGALAPPUZHA

HISTORICAL VIEW

WHAT IS ECONOMICS?

Economics is the science of scarcity. It analyses how choices are structured and prioritized to maximize welfare within constrained resources.

Economics is the study of distribution of scarce resources commonly known as goods and services across a population

WHAT IS ECONOMICS?

The Economics is the science that deals with the consequences of resources scarcity.

The discipline of economics deals

with use of scarce resources to satisfy human wants and needs how best to use the resources available.

MODELSPOSITIVE ECONOM

ICS•to establish cause and effect in a scientific manner

NORMATIVE ECONOMIC

S

•establishing the means by which socially desirable outcomes can be achieved

WHAT IS HEALTH?

. According to World Health Organization's (WHO)

constitution health is 'a state of complete physical, mental and

social well being and not merely the absence of disease or

infirmity'

“Health" in health economic (evaluation) is health status according to some measure.

DEFINITIONS OF HEALTH ECONOMICS

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


It is the allocation of resources within the health system in the economy, as well as functioning of health care market.


Health economics is concerned with the formal analysis of costs, benefits, management, and consequences of health and health care. It is the branch of economics concerned with the application of economic theory to phenomena and problems associated with health and health care.


Health economics is the study of how scarce resources are allocated among alternative uses for the care of sickness and the promotion, maintenance and improvement of health, including the study of how health care and health-related services, their costs and benefits, and health itself are distributed among individuals and groups in society. It can, broadly, be defined as 'the application of the theories, concepts and techniques of economics to the health sector'.

CONCEPTS IN HEALTH ECONOMICS

Resources Scarcity opportunity of cost efficiency production of health health care market


Macro-economics

economy level of outputs

level of national incomegeneral price

level


Microeconomics •Microeconomics is the study of economic behavior of individual decision making units such as: consumers, resource owners and business firms in a free enterprise economy.

•This can be measured by conducting market surveys, pilot and feasibility studies.


Health Microeconomics Health microeconomics is concerned with how individuals choose, minimize costs or maximize profit or utilities within a given health care system within a set of rules and prices.

COMPONENTS OF HEALTH ECONOMICS

Meaning and scope of health economics

Determinants of health

Demand for health and health care

Supply of health care

Health care markets

COMPONENTS OF HEALTH ECONOMICSThe relationship between economic growth and health

Health sector budgeting and planning

National health systems

Equity in health outcomes and in health care

International health.

Medical advances

Due to increase in

life expectancy

Changes in family

structure and norms

Advances in health research

Higher expectation

among people

public awarene

ss

NEED FOR HEALTH

ECONOMICS

IMPORTANCE OF HEALTH ECONOMICS

• To formulate health services

• To establish the true costs of delivering health care or to estimate all real costs like the use of patients' time, loss of output elsewhere in the system etc

IMPORTANCE OF HEALTH ECONOMICS

• To evaluate the relative costs and benefits of particular policy options

• 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 and economic development

• Organization and economic development

• To identify and measure health and diseases ,basic needs. To identify determinants of growth and economic development, elements of health expenditure by use of macro economics

• To determine the economic characteristics of health care and Health related activities

HEALTH POLICY ISSUES RELEVANCY OF ECONOMICS

• Finance aspects of health sector

• Demand analysis

• To find out the source of health care financing; social accounting system, self financing insurance etc.

• To analyze the determinants of demand, individual and supplier induced behavior, time, cost ,health payment system etc


• Supply analysis• Health man power

• To determine the physical resources and costs, estimation of short term And long term cost curve

• To determine the labour market and demand for & supply of health workers,remuneration and other determinants of behavior ,productivity etc


•Financial management

•Budgeting system and accounting ,inventory managment


Major Tasks of Economics In Health (Care)

Descriptive Quantification

Explanatory or Predictive

Evaluative

FEATURES OF HEALTH ECONOMICS

Health and medical care is considered as economic goods

Health is a private or a public good Measurement of health is also

considered in economics Stock of health Investment aspects of health

FEATURES OF HEALTH ECONOMICS

Loss due to ill health Resource costs of different diseases,

effects of health and medical care provision

Planning of health and medical care Choice of technology in health care

system, etc. Provision of equity in health outcomes

and health care;

AREAS OF HEALTH ECONOMICS

Economic aspects of relationship between health status and productivity

Financial aspects of health care services

AREAS OF HEALTH ECONOMICS

Economic decision making in health and medical care institutions

Planning of health development and such other related aspects

FACTORS INFLUENCING HEALTH ECONOMICS

Extensive government intervention

Intractable uncertainty in several dimensions

Information asymmetric

Barriers to entry

Externalities and the presence of a third-party agent

TOOLS USED IN ECONOMIC ANALYSIS

Economic Variables

Relationships between Economic Variables

Graphical Representati

on of Relationship

s

The Direction of

the Relationship

s

ECONOMIC EVALUATION

Economic evaluation is the comparative analysis of alternative courses of action in terms of both their costs and consequences in order to assist policy decisions

Steps in Economic Evaluation Deciding Upon the Study Question

Assessment of Costs and Health Effects

Adjustment of timing

Adjustment for uncertainity

Making a decision

TYPES OF ECONOMIC EVALUATION

Cost minimization

Analysis (CMA

Cost-effectiveness Analysis

(CEA)

Cost-utility Analysis (CUA)

Cost-benefit Analysis (CBA).

Cost analysisCost 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.

When to Use Cost Analysis?

Cost analysis can be used as an evaluation method when

-Only one program is being assessed, -Information about program

effectiveness is not available, or the interventions being assessed and compared are equally effective.

Objectives of Cost Analysis

To assess the efficiency and effectiveness of function and their cost implication.

To improve the policy relevance and utility through assessment, planning and avoidance of wasteful expenditure in the hospital.

To allow researchers to achieve cost minimization for the programs under consideration.

Purposes of Cost Analysis

A tool for planning and cost projection

To assess the efficiency of a programme

To assess the priorities Accountability To assess equity

Principles of Cost Analysis

Make explicit the analytic perspective

Describe the anticipated benefits Specify the components of costs Discount to adjust for differential

timing Perform a sensitivity analysis Calculate measurement of

efficiency

Framework of Cost Analysis

1. Identify and define the problem 2. Defining the alternatives 3. Defining the audience 4. Define the perspective 5.Define time frame 6. Determine the time frame and

analytic horizon 7. Choose a format/methodology

Basic Steps in Cost Analysis

Define program, treatment, or technology to be analyzed

Develop a framework for cost analysis of program

Describe objectives of analysis Select type of cost analysis Design methodology of cost analysis


Apply principles of cost analysis Describe study outcomes Development of cost inventory Preparation of cost summary


Measurement/evaluation of resources used

Calculate cost analysis results : total cost, average costs, and marginal costs

Sensitivity analysis and discounting

Total cost (TC)

• The total cost of a program or an intervention is derived by adding all the costs incurred in producing a given level of output. It includes the cost of all the personnel, the supplies, and the equipment that were identified in the cost inventory.

TC = Quantity of resource 1 X value of that resource 1 + ....+

Quantity of resource n X value of that resource n

Average cost (AC)

• The average cost is the cost per unit of output (e.g., cost per patient treated or cost per child immunized). AC is computed by dividing the total cost by the number of participants or other relevant intervention units. The formula is

AC = TC / Q ; Q= Units of output

Marginal cost (MC)

The marginal cost is the resource cost associated with producing one additional or one less unit within the same intervention/program

MC = Change in total costs/change in quantity produced Or

MC = (TC' -TC) / (Q' Q)

TC' = Total costs a higher output level TC = Total costs at lower output level Q' = Higher level of output Q = Lower level of output

Health Valuation Methods

Cost-of-Illness Method (COI) Non Market Valuation Methods

NON MARKET VALUATION METHODS

STATED PREFEREN

CE METHOD

REVEALED PREFEREN

CE METHOD

REVEALED PREFERENCE METHODHedonic pricing The hedonic method is based on the

principle that the prices that consumers pay or receive depends on characteristics of the person that can be objectively measured.

W = f (q,e,ex,a,g) Whereas W= the wage rate; q =a

measure of qualification; e= experience; ex = measure of experience; a= age; g=gender

REVEALED PREFERENCE METHODHedonic pricing

REVEALED PREFERENCE METHOD

Averting behavior method

The value of a small change in health status can be measured by the amount of money a person is willing and able to spend on some controlling or preventive device or defensive (averting) action. This amount of money represents the person's valuation of safety against a perceived risk.

STATED PREFERENCE OR CONTINGENT VALUATION METHOD (CVM)

This is direct method, uses primary surveys that ask persons to place values on an intervention to attain a level of health outcome.

Types of Cost Analysis

Cost-of-illness analysis

Cost-benefit Analysis (CBA)

Cost-effectiveness Analysis (CEA)

Cost-utility Analysis (CVA)

Cost-minimization Analysis

Cost-consequence Analysis

TYPE OF ANALYSIS COST OF INTERVENTION

OUTCOME CONCERN

Cost benefit analysis Monetary units Valued In cash terms Net cost: benefit ratio

Cost effectiveness analysis

Monetary units Qualitative non-monetary units eg: reduced morbidity or years of life gained or saved

Cost per unit of consequence or cost per years of life gained/saved

Cost utility analysis Monetary units Valued as UtilityEg: Quality adjusted life year (QALY)

Cost per unit of consequence or cost per QALY

Cost-minimisation-analysis

Equivalent outcome in all respect

The least cost alternative

COST-BENEFIT ANALYSIS

Cost-benefit analysis is a practical way of assessing the desirability of projects, where it is important to take a long view (looking at the repercussion in the future as well as in the near future and a wide view in the sense of allowing side effects of many decisions) Le. it implies the enumeration and evaluation of all the relevant cost and benefits.

-Prest and Terkey


Cost Benefit Analysis (CBA) is an economic evaluation technique that measures all the positive (beneficial) and negative (costly) consequences of an intervention or program in monetary terms.


CBA is a practical approach of appraising the desirability of an intervention involving public expenditure in terms of net social gain society.

CBA is the use of analytical techniques involving a monetary assessment to identify the total costs and benefits of a specific intervention


Benefits Direct Benefits Indirect Benefits Intangible Benefits

Benefits (B) > Costs (C) or Net Benefits (NB) = B -C > O.

Importance of Cost Benefit Analysis Cost Benefit Analysis is used for

determining priorities among various alternative programs or interventions.

It provides an estimate of the potential value of undertaking a course of action, i.e. instituting a new program or intervention or revising the old one.

It can also be used to compare health-related interventions to those in other economic sectors.

Importance of Cost Benefit Analysis

It enables policy makers to determine whether the value of its positive consequences exceeds the value of societal resources required to implement the program.

It estimates and totals up the equivalent money value of the benefits and costs of projects to establish whether they are worthwhile. .

It is a powerful and relatively easy tool for deciding whether to make a change or not.

Features of Cost Benefit Analysis

CBA adopts a broad societal perspective as it includes all costs and all benefits

CBA measures the outcomes in monetary terms.

It assess the desirability of program/intervention

Purposes of Cost Benefit Analysis

To assess the economic efficiency To decide whether to implement a

specific program To select among

competing/alternative options

Principles of Cost Benefit Analysis

• There must be a common unit of measurement. All the benefits and costs of the program/project must be measured in terms of their equivalent money value

• The CBA valuations should represent consumers or producers valuation.

• The valuation of benefits and costs should reflect preferences reveled by choices


• The benefits are usually measured by market choices.

• The marginal benefit should be equal to the market price.

• The gross benefits of an increase in consumption are an area under the demand curve.


• Some measurements of benefits require the valuation of human life. These values can be used to estimate personal costs in terms of increased risk or of reduced risk.

• The alternatives must be explicitly specified and considered in the evaluation.

• The impacts of the programmes must be defined


• The discounted present value of benefits should exceed the discounted present value of costs.

• Compare alternative programmes in terms of the expected benefits and cost ratio of each programme to determine which should receive priority for funding

Advantages of Cost Benefit Analysis

• It helps to allocate scarce resources to programs that maximize societal economic benefit

• It studies the full economic impact of all potential outcomes of an intervention.

Advantages of Cost Benefit Analysis

• It makes possible to compare different programs having different health outcomes, or health programs to non health programs.

• lt allows analysts to examine its distributional aspects; who will receive these benefits and who will bear the costs.

Drawbacks of Cost Benefit Analysis • It measures costs and outcomes in

monetary terms and not disease specific

• There is difficulty in assigning monetary values to all pertinent outcome including changes in the length or quality of human life.

• The results of CBA are only as good as the assumptions and valuations on which they are based.

Ratio approach

Net benefit approa

ch.

Approaches of Cost Benefit Analysis

Procedural Steps in Cost-Benefit Analysis

Identifying Intervention Outcomes

Health Outcome

Non-health Outcome

Intangible Outcome

Cost-effectiveness analysis

• Cost-effectiveness analysis is an economic study design in which consequences of different interventions are measured using a single outcome, usually in 'natural' units (for example, life-years gained, deaths avoided, heart attacks avoided or cases detected). Alternative interventions are then compared in terms of cost per unit of effectiveness.


Cost-effectiveness analysis as tool decision-makers can use to assess and potentially improve the performance of their health systems. It indicates which interventions provide the highest 'value for money' and helps them choose the interventions and programmes which maximize health for the available resources.


Cost Effectiveness Analysis (CEA) is a type of economic evaluation that examines both the costs and health outcomes of alternative intervention strategies.

Aim of Cost Effectiveness Analysis

• To maximize the level of benefits-health effects-relative to the level of resources available

Objectives of Cost Effectiveness Analysis

To compare alternative programs with a common health outcome

To assess the consequences of expanding an existing program.

Purposes of Cost Effectiveness Analysis

To identify the most cost-effective intervention from a group of alternatives

To provide empirical justification for a program

Purposes of Cost Effectiveness Analysis

To identify and exclude programs that is wasting resources.

To provide general information on the relative costs and health benefits of different alternatives

To evaluate the interventions in terms of efficacy (cost effective ratio), absolute health gain and affordability (absolute cost)

Drawbacks of Cost Effectiveness Analysis

• The data regarding direct costs such as doctors' or nurses' time and supplies used; indirect costs such as a portion of administrative costs, the cost of equipment are usually not readily available.

• It does not facilitate comparisons across different diseases when different outcomes have been used.

• Cost-effectiveness is the only one criterion for judging whether an intervention is effective or not.

Benefits of Cost Effectiveness Analysis

• This method is easy to understand and more readily suited to decision making.

• It provides empirical results for the decision makers to compare the costs and consequences associated with alternative programmes.

MEASURES FOR COST-EFFECTIVENESS

cost effectiveness ratio (CER)

net health benefits (NHB)

COST EFFECTIVENESS RATIO (CER) Average cost-effectiveness ratio (ACER) Marginal cost-effectiveness ratio (MCER) Incremental Cost-Effectiveness Ratio (ICER)

NET HEALTH BENEFITS (NHB)

It is the difference between the health outcome and cost divided by rate of substitution of money for health.

NHB = E-C/A.

ELEMENTS OF CEA

A clear study perspective, time frame, and analytic horizon An explicitly defined study question Relevant assumptions underlying the study Detailed descriptions of the interventions Existing evidence of the interventions'

effectiveness Proper identification of all relevant costs A comprehensive discussion of the results

PROCEDURAL STEPS IN COST-EFFECTIVENESS ANALYSIS

Defining the Problem Adopting a Research Strategy Specify Audience Define Perspective Specify the Time Frame Work Prepare the Analytic Horizon Decide the Type of Study Design Identify the Outcome Measures or Variable Search for Available Alternatives Identify the Types of Costs to be included in CEA Analysis

Utility is the value or worth of a level of health as measured by the preferences of an individual or society. Cost-utility analysis is one form of cost-effectiveness analysis, which allows the comparison of different health outcomes by measuring them all in terms of a single unit-(QALY)

(Maurice McGregor).

COST UTILITY ANALYSIS (CUA)

It weighs costs and. quality adjusted health outcome of each intervention in order to take the decision for the programme to be implemented.

COST UTILITY ANALYSIS (CUA)

quantity of life years / QALY

disability-adjusted life years /DALY

Measures of CUA

Health rating method

Time trade-off method

Standard gamble method

Health index method

Methods of QALY

The World Health Organization defines disability-adjusted life years (DALY) as 'a health gap measure that extends the concept of potential years of life lost due to premature death to include equivalent years of healthy life lost by virtue of being in states of poor health or disability'. In other words, one DALY is one lost year of healthy life.

DALY is a combined measure of years in disability

and years of life lost due to premature death (from the disability).

Disability-Adjusted Life Years

Years of Life Lost (YLL): YLL is the number of years of life lost due to premature death.

Years Lived with Disability (YLD): YLD is the number of healthy years lost due to disability from the condition until remission or death.

Measures of DALY

To measure health care costs and interventions To evaluate the effect of a nursing intervention

on patient outcomes when one of these outcomes is QOL

To compare use of a nursing process management with a disease process (hypertension) management

To assess cost utility for both medical interventions and nursing interventions

To compare current practice and the change in practice need

Advantages of CUA

It is used for comparing interventions to achieve one quality adjusted life year.

Cost Utility Ratio

COST MINIMIZATION ANALYSIS

Cost minimization analysis is a

specific type of analysis in which the outcomes of the two or more healthcare interventions are assumed equal. Therefore economic evaluation is based solely on comparative costs and result is least cost alternative

COST CONSEQUENCES ANALYSIS Cost consequences is a form of cost

effectiveness analysis comparing alternative interventions or programs in which the components of incremental costs (e.g., additional therapies, hospitalization) and consequences (e.g., health outcomes adverse effects) are computed and listed, Without aggregating these results (e.g., into a cost-effectiveness ratio).

COST CONSEQUENCES ANALYSIS Cost consequences analysis is a means

to estimate whether the value of results obtained is worth the investment. In a cost-consequences analysis, instead of combining the costs and effects, all the costs and outcomes are reported separately.

COST CONSEQUENCES ANALYSIS-ADVANTAGES

Simple to use and evaluates the entire program of care

Allows decision makers to impute their own values to the different costs and consequences Incorporates several outcome measures and easy to interpret the findings

Used to evaluate practice guidelines and disease state management programs.

COST CONSEQUENCES ANALYSIS-DISADVANTAGES

There is a difficulty of comparing outcomes between different interventions in order to prioritize them.

DISCUSSION

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