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INTRODUCTION TO HEALTH ECONOMICS || Dra. Mariano

*Dra Mariano made students make paper money and assigned us


different roles in the society and let us use and receive them  The science of choice. It studies how people choose
money in exchange for goods (portraying basic economics) to use scarce resources (land, labor, equipment and
technical knowledge) to produce various commodities
* Q&A after (No formal discussion) and distribute these goods to various members of
society for their consumption.
*trans lifted from 2D 2017 (this appeared on the shifting exam.)
 The study of money, banking, capital and wealth.
 The study of commerce among nations. It helps
explain why nations export goods and import others,
OBJECTIVES and analyzes the effects of putting economic barriers
at national frontiers.
1. Define terms:  Implications:
 Economics  There will always be scarce resources, and
 Health people will struggle to work against scarcity.
 Health Economics  There is a universal objective of attaining the
2. Describe the scope of Health Economics maximum output out of a given input.
3. Discuss the Fundamental Theorem of Exchange  In health, given the limited resources and the
4. Discuss the Framework of health economics desire to provide the maximum benefit to all
5. Discuss economic principles (improve health status, improve life expectancy,
6. Discuss the interplay of demand and supply increase productivity), what technology or
7. Discuss characteristics of the health system process must be used?
8. Discuss the value of health care financing
9. Reflect issues in health economics that have
significance in ethics Macroeconomics Microeconomics
ECONOMICS
 Interest rates  Price of
 Study of how people and society end up choosing,  Currency goods
with or without the use of money, employing scarce exchange rates  Distribution
but productive resources that could have alternative  Prices of goods
uses, to produce commodities and distribute them for  Wages  Allocation of
consumption, now or in the future among various  Inflation resources
people and groups in society.  Unemployment
 It analyzes the costs and the benefits of improving  Economic
patterns in resource allocation. (Samuelson) policies
 About choice  Taxation

HEALTH

 The state of mental, physical and social well-being ,


and does not merely connote the absence of illness or
disease. (WHO)
 Has varying degrees or states
 Has underlying determinants: social, cultural,
economic, demographic factors
 Has proximate outcomes - directly affect the health
status or outcomes of individuals or groups
 The general condition of the body or mind, especially
in terms of the presence or absence of illnesses,
injuries, or impairments.
 Choosing the process or produce the commodity DETERMINANTS OF HEALTH
which will give the maximum benefit from a given
input.  The social, economic, cultural and demographic
 Resources: Land, Labor, Technology, Capital factors have an influence on the proximate factors,
 Benefits: Food Production? Productivity? Quality of and which do not directly affect health outcomes.
life? Life Expectancy? Peso Value and its purchasing However, these underlying factors will ultimately
power? influence the activities, exposures and attitudes of
 Economics is the study of those activities that involve individuals, households and communities towards
the production and exchange of goods. health. Remember that these underlying factors are

TRANSCRIBERS: Lirio, Taan, Tan 1|P a ge


MED ETHICS 2 Introduction to Health Economics

HEALTH ECONOMICS
those that lie beneath or what we also call the root
causes.  Allocation of resources b/w various health promoting
activities, quantity of resources in health care delivery
to improve health, organization and funding of health
organization
 Efficiency of the allocation and use of resources for
health, assessment of the effects of preventive,
curative and rehabilitative health services on
individuals and society.

SCOPE OF HEALTH ECONOMICS

 Economic costs of diseases


 Benefits of control programmes
 Return from investments in medical education and
training
 Conditions conducive to medical research

ECONOMIC ASPECTS OF HEALTH SERVICES


 Study of how scare resources are allocated among
individuals among alternative uses
 A branch of economics concerned with issues related
 Remember that underlying factors affect the to scarcity in the allocation of health and health care.
proximate factors, which then affect health  Distributed among individuals and groups in society
outcomes. (World Bank, 2001)
 Note: Each of these factors (underlying and  Focused on market: buyers and sellers
proximate) may all be “intervention points” which  Without buyers and sellers: No economy, insurance,
can improve health status. However, not all factors wealthy surgeons, hospital billing department, and
are within the control of health premiums on health care savings.
workers/practitioners/public health officials.
 Thus, the theoretical holistic approach to the
treatment of illnesses will require the cooperation of a HEALTH ECONOMICS IS ABOUT:
lot of sectors, which may be easier said than done.
 Limited money, access to health services, resources
Example 1: At the individual level a coal miner’s  Unlimited “wants” that satisfy us (ie. food, cigarettes,
occupation (underlying determinant) exposes him to alcohol, etc)
mineral contaminants (proximate determinant), which  Choosing between which ‘wants’ we can ‘afford’ given
leads to an increase incidence of lung disease (health our limited budget
status/outcome)  Scarcity – it makes it necessary for us to economize.
We count the cost, choose among options, go without
Example 2: At the household level, low income one thing so as to be able to buy more of another.
(underlying determinant) among households leads to Essentially we are trying to economize what money
poor nutrition (proximate determinant), which leads to will buy. We attempt to purchase with limited income
poor weight for height, malnutrition (health those goods and services which give us the most
status/outcome) satisfaction.
 Choice – use of money implies choice. Choices must
Example 3: At the community level poor be made on rationale grounds. But unfortunately they
transportation/network (underlying determinant) leads are not. Either they are made impulsively or through
to poor health care utilization (proximate determinant), force of habit. One does not always search out for the
which in turn leads to more deaths/diseases (health cheapest prices of health care. If similar goods are on
status/outcomes). sale at rates of pay, men will other things being equal
will purchase the cheaper goods and apply for the
higher paid jobs. Thus one is obliged to work from the
premise that choice
 is deliberate and rational without overlooking the part
played by impulse, custom and inertia.

FUNDAMENTAL THEOREM OF EXCHANGE

 Any voluntary exchange between persons must


make both of them better off because they willingly
agreed to trade.

TRANSCRIBERS: Lirio, Taan, Tan 2|P a ge


MED ETHICS 2 Introduction to Health Economics

 Value not necessarily determined by “the


 For a surgeon to be a seller, the patient must be a market”.
buyer. They must agree on a price so that an  Cost-Benefit Principle
exchange can occur. The surgeon would probably  An individual (or a firm or a society) should take
prefer that the price be higher and the patient would an action, if and only if, the extra benefits from
probably prefer that it be lower, but both must be taking the action are at least as great as the extra
satisfied in order for a trade to take place. Economists costs.
observe that because a transaction takes place, there  Getting an annual physical exam costs less if by
must have been a mutual agreement that made both early screening one identifies those who are sick
the buyer (patient) and the seller (surgeon) better off. early on with chronic diseases like diabetes,
 If the surgeon had watched television than perform hypertension that will be costly later on.
another operation, she would have turned down the  If after having a knee injury you believe the
case. If the patient would rather have saved the benefits of going to the ER outweigh the costs,
money or gone to a different surgeon, he could have you will go to the ER.
done so. The insight that both parties must be  Prevention is worth more than a pound of cure.
benefitting if they freely agreed to make a trade is  Suppose if class size comes only in 2 sizes – 100
central to the economic vision of the world and is seat lecture halls and 20 seat classrooms .
known as the fundamental theorem of exchange. Currently your university offers introductory
courses to classes of 100 students. Should
admin reduce the class size to 20 students, the
FRAMEWORKS OF HEALTH ECONOMICS rule is, reduce if and only if the value of the
improvement in instruction outweighs its
 See figures at the last page. additional cost.
 Suppose Bill Gates (whose wealth is worth 100
billion dollars) sees a 100 dollar bill on the
ECONOMIC PRINCIPLES sidewalk. Is it worth his time to pick it up? No,
since his time and energy could be spent better
 Scarcity: working within the limits on other things.
 Reality imposes limits on what one can do.
 The most basic limit is time.  Principle of Comparative Advantage
 Budget constraints: income, bank balance, credit  Everyone does best when each person
rating, relationships, things concentrates on the activities for which his
 Trade: benefitting from exchange opportunity cost is lowest.
 Time, favors, money, information, things are  Opportunity cost – what must be given up in
exchanged because it makes them better off. order to do or obtain something
 Both sides must benefit or they would not agree  You have a comparative advantage in providing
to trade. health services – measured in terms of other
 Choice: are benefits greater than costs? health services foregone, if the opportunity costs
 Trade-off, choosing the option that means more are cheaper or smaller with that of other doctors.
to the person.  Maximum service is achieved if each person
 People make choices that make them better off in specializes in providing the service in which he
a way they value has the lowest opportunity cost.
 Examples:  Opportunity cost – what must be given up in
o Giving up a workout in a gym in order to order to do or obtain something; highest valued
study alternative that must be foregone.
o Passing up marrying in order to send a  Examples:
sibling to college 1. In a crisis, people pay almost anything for
 Opportunity cost: what do I have to give up? medical care. The opportunity cost is too
 A measure of what something costs is what one great to bargain over “how much” when your
has to give up to get it. daughter’s life or mother’s life is at stake.
 Examples: Hence, every modern economy offers
o Extra weekend date will cost a lower emergency medical care on demand and
grade or lost hours in studying extensive programs of health insurance.
o Decision to study to get a 90% will cost 2. Doctors make decisions. Patient make
me a date decisions. In choosing a Php48,000.00 in
o Scholarships will cost me a delay in Manila, a practitioner who gives up a
fellowship training abroad Php25,000.00 job in the province is “paying”
 Implications of Opportunity cost an opportunity cost of Php23,000.00
 Deciding to do A implies deciding not to do B (i.e. 3. The cost of not taking an experimental drug
value of benefits from A>B). to treat HIV is the foregone chance of living
 Cost can be incurred without financial an extra 2 years or feeling better.
expenditure.

TRANSCRIBERS: Lirio, Taan, Tan 3|P a ge


MED ETHICS 2 Introduction to Health Economics

 Principle of Increasing Opportunity


Cost

 In expanding the production of any good, first


employ those resources with the lowest
opportunity cost, and only afterward turn to
resources with higher opportunity costs.
 Specialization boosts productivity.
 Will a doctor clean a patient’s wound each visit or
will he ask an assistant to do it for him? If he can
clean wounds faster and more thoroughly than an
assistant, then the doctor should clean the
patients’ wounds himself.
 If in doing a surgical procedure you finish using a
cheap compressor for suctioning, by all means
use it. If you were to make a choice, between an
old and a new compressor, use the old reliable
one.
 Economic resources are not completely suited to
all forms of uses, i.e. the answer lies in the
specificity of resources. One resource is often
more suited to the production of a certain
commodity above others. For example, land is
more suitable to the production of apples than the
production of shirts. As we increase the shirt
production, more and more land is transferred to
production of shirts, where it is less suitable.
Therefore, opportunity cost of producing shirts
increases.

 The Efficiency Principle


 Efficiency is an important social goal, because
when the economic pie grows larger, everyone
can have a larger slice.
 Efficiency occurs when all goods and services in
the economy are produced and consumed at
levels that produce the maximum economic
surplus for society

TRANSCRIBERS: Lirio, Taan, Tan 4|P a ge