ECONOMICS in HEALTH CARE

C.S.Serrano-Tinio, MD, MPH, MBA-H, FPAFP Department of Family and Community Medicine

Non-economists definition: Economics is the role of money in human affairs

Economics
a social science which studies how people attempt to make use of resources which are scarce to satisfy their wants which are numerous and how attempts interact through exchange

Resources
All inputs used to produce goods and services
Land physical resources Labor human resources Capital created by humans to aid production such as tools, machinery and factories Enterprise the human resource of organizing the other 3 factors to produce goods and services

Wants
Desires or needs

Economics
a social science which studies how people attempt to make use of resources which are scarce to satisfy their wants which are numerous and how attempts interact through exchange

Concepts attached with the use of Money:

Exchange Scarcity Choice

Exchange
Money is the principal medium of exchange in society

Php

Scarcity . . .
deficiency in the quantity or quality of available goods and services relative to the quantity and quality desired

Choice
Choosing between commodities to satisfy a need

Health economics
Branch of economics concerned with issues related to scarcity in the allocation of health and health care

Health Economics
The science that examines the ways in which services and resources are provided to the entire population and the efficiency and equity of providing these services.

 Efficiency work gets done with the minimum of financial inputs and as quickly as possible Equity ability to allocate the interventions according to the needs and expected health benefits

How is Economics applied in Health?

the analysis of the economic costs of diseases benefits of control programmes - returns from investments in education and training aspects of health problems - type, quality, quantity and prices of the resources used population problem, the quantity and quality of resources allocated to the health area, the medical industrys efficiency, losses due to illness, disability and premature death.

DECISION-MAKER

Some characteristics of the health system that are of Economic significance:

The demand for curative services in the case of a life threatening condition is not particularly influenced by the patients income and price of service.

Some characteristics of the health industry that are of Economic significance:

The demand for curative services in non-life threatening conditions is influenced by the patients income and price of service. The higher the income or the lower the price the more demand will be made.

Some characteristics of the health industry that are of Economic significance:

The demand for preventive health services is not influenced by income and price. The demand for these is usually low.

Some characteristics of the health industry that are of Economic significance:

The consumer of health services does not determine the amount, kind and quality of what he purchases. The economy of scale does not seem to work in hospitals. Competition does not result in lowering the charges for health services.

Some characteristics of the health industry that are of Economic significance:

Marketing goal to maximize demands for services apply only to preventive and promotive health programs. It is not the goal of a physician to stimulate demand for his or her services.

Why is health economics important?

Increasing demands in the health care system Increasing costs of medical expenses New technology

Scarcity of resources

CHOICES have to be made

DECISION-MAKER

Principles in economics
Efficiency maximizing benefit for a given set of resources Equity distribution of resources within society

Types of Cost of Illness

Direct Incidental Indirect Psychic

Cost of Illness
Direct costs of a disease
accurately correlated with an illness Preventing, diagnosing, treating the disease (hospital stay, professional fee, drugs, laboratory exams, home care)

Cost of Illness
Incidental costs non-medical costs like travel costs, food and lodging, costs of attendants Indirect costs production losses, economic losses
Loss of wages due to illness, disability, premature death

Cost of Illness
Intangible costs or Psychic costs
Unquantifiable Pain, suffering, disruption of normal lifestyle

Opportunity Cost
Potential benefit that could have been received if the resources had been used for another alternative

How do we measure economic efficiency?

Economic Efficiency
Efficiency work gets done with the minimum of financial inputs and as quickly as possible Total benefit MAXIMIZED Cost MINIMIZED

Economic Appraisal / Evaluation

Benefits

Costs

vs.

Immediate or direct effects: - lives saved - reduction in tumor size - change in blood pressure Utilities: gen. well-being - happiness, satisfaction Valued in monetary terms

Economic Appraisal / Evaluation

Systematic and comparative analysis of 2 courses of action in terms of both costs and consequences or benefits

 Economic evaluation is therefore an effort to analyze inputs (resources) and outputs (changes in health outcomes) simultaneously, and help decisionmakers assess whether a certain level of output is worth the amount of resources expended to produce it (given that resources are scarce and can be used for alternative purposes).

Why Should Economic Evaluations Be Conducted?

ECONOMIC APPRAISAL
Cost minimization analysis Cost-effectiveness analysis Cost benefit-analysis Cost-utility analysis *Difference is in how consequences are measured.

Cost minimization analysis

Consequences of competing interventions are the same and in which only inputs, that is, costs are considered Used when the effect of both interventions is identical (or assumed to be identical). Thus, there is no outcome measure - only costs are accounted for. Aim is to decide the least costly way of achieving the same outcome

ANTIBIOTICS:
Retail Price/pc Drug A Drug B 7-day therapy Drug A Drug B 200 mg Cap 47.25 80.50 200 mg Cap 661.50 1,127.00 500 mg Cap 86.25 142.00 500 mg Cap 1,207.50 1,988.00

Cost benefit-analysis
Outcome of 2 programs differ All costs and consequences of a program are expressed in the same units, usually money Comparison of costs and benefits across programs serving different patient groups monetary value on all outcomes

A Benefits Versus Costs Example

Consider a vaccination program implemented by an employer to vaccinate employees healthy working adults against influenza. An economic study documents that the total cost of vaccinating one person is $16.69, and benefits gained by each person vaccinated total $30.35.

If the employer has sufficient health-care funds to fund the program, should the employer do it?
Because the benefits outweigh the costs, the employer might consider investing in the program if it compares favorably to other programs

Cost-effectiveness analysis
An economic evaluation in which the costs and consequences of alternative interventions are expressed as cost per unit of health outcome Used when there is differential success in outcome but the outcome is present in both interventions A cost-effectiveness analysis (CEA) compares interventions with a common outcome (such as blood pressure level) to discover which produces the maximum outcome for the same input of resources in a given population. Interprets benefits in non-monetary terms Measures outcome in natural units cases detected, lives or life-years saved, heart attacks prevented

Cost-effectiveness analysis (CEA)

is used to compare the costs of alternative intervention strategies that produce a common health effect.
compare a newly developed vaccine treatment with an existing one in terms of cost per case of smallpox prevented in the target population.

Cost-utility analysis (CUA)

combines life years saved with the quality of life during those years

Cost-utility analysis
Patients preferences are considered with respect to the effects of the intervention Used when treatments have a wide range of outcomes and a common unit is required Outcomes are measured in a composite metric of both length and quality of life

Cost-utility analysis
Outcomes measured using a common scale
DALYs disability-adjusted life years QALYs quality-adjusted life years
# of years of life saved # of lives saved # of successful treatment # of cases of illness avoided

Types of Economic Evaluation

Analysis CostMinimization Costeffectiveness Cost-utility Cost-Benefit Costs Php Php Php Php Consequences or Outcomes Identical Php
Nat. units of clin. effects produced; life yrs. Gained, mm Hg change

quality of life produced QALY

Php value of consequences produced