MAKING DECISION
ONLINE LECTURE
What is Health Economics?
In this session we will cover:
• A definition of health economics
• Positive versus normative economics
• Aims, scope and limitations of economics
• The production of health care and health
• Health care for whom?
What is Health Economics?
• A definition:-“the application of the discipline
and tools of economics to the subject
matter of health (Culyer 1981)
• The discipline of economics describes a way
of thinking about problems of resource
allocation
• Economics is:
– the science of choice
Definition of Economics
The study of how men and society end up
choosing with and without the use of money,
to employ scarce productive resources that
could have alternative uses, to produce
various commodities and distribute them for
consumption, now or in the future, among
various people and groups in society.
It analyses the costs and benefits of
improving patterns of resource allocation.
Fundamental concepts
Resource Scarcity
Land, Lab our and Capital
Choice
in what to produce and what to consume
Opportunity Cost
benefits forgone in the next best use of those resources
Efficiency and Equity
What is health economics?
• Positive economics analyses how economic
agents (people, firms, hospitals etc) actually
behave.
• Normative economics considers what role the
government ought to play in the running of
the economy. Normative economics is value laden.
• Values are present in both positive and
normative economics
What is Health Economics?
Part 2
The scope of
health economics
A. What influences health
(apart from health care)?
B. What is health and what is its
value?
• Consequentialist approach to health
• What are the outcomes of health care?
• Beyond consequentialism – does
process matter?
C & D. Demand & Supply of
health care
• Markets
• ‘How much of what sorts of resources to
allocate, to the production of which
forms of health care, how, and for
whom?’ (Evans, 1984)
• supply, demand, price and utility
• Adam Smith’s ‘invisible hand’
E. Micro Economic Evaluation
• AIM – Efficiency
• Means
– Cost Effectiveness Analysis (CEA)
– Cost Minimization Analysis (CMA)
– Cost Utility Analysis (CUA)
– Cost Benefit Analysis (CBA)
Economic Objectives of Health
Care
• Efficiency – allocating resources in such a
way that maximizes the (health) benefits to
society and minimize costs.
Two levels of efficiency
• Allocative efficiency
– is something worth doing? (benefits
exceed costs)
– getting the right mix of (health care)
services
– is based on the utilitarian ethic of
maximizing satisfaction for the greatest
number of individuals
Two levels of efficiency
• Operational efficiency
– if something is worthwhile doing, what is the best
way of providing it (at least cost)?
– maximum output for a given level of resources or
– minimum cost for a given level of output
F. Market equilibrium
• Is health care ever in equilibrium?
G. Evaluation at whole system
level
• To what extent does the HC system
meet equity and efficiency objectives?
G. Evaluation of the whole
system
• Are we meeting the objectives of our
health system?
H. Planning, budgeting and
monitoring mechanisms
• How do we optimise the outcomes of
the health care system?
• e.g. Pharmaceutical Benefits Advisory
Committee (PBAC)
• e.g. Medical Services Advisory
Committee (MSAC)
Last Completed Projects
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