HEALTH ECONOMICS Lecture 1: Introduction to health economics

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HEALTH ECONOMICSLecture 1 Introduction to
health economics
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Outline

• Course overview
• Group work - what is economics
• Brief lecture on some basic economic concepts
• Group work - priority setting exercise

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Course aim

• To introduce you to the application of economic
  thinking to the analysis of health policy and
  health systems
• Components
• Organisation and financing of health care
• Priority setting and resource allocation
• Economic evaluation of alternative ways of
  providing health care

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Course skills

• Ability to
• Describe the key theories underpinning health
  economics
• Explain the different ways in which health care
  can be financed and delivered
• Recognise the contribution of economics to health
  and health care and how it can assist decision
  making in the NHS
• Demonstrate what economic evaluation is and its
  underlying principles
• Critically appraise published economic evaluations

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Students

• BSc Health Sciences
• MSc in Health Services Research
• MSc in International Health and Management
• MBA International Health Care Management

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What is economics?

• The study of how men and society end up
  CHOOSING, with or
• 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. (Samuelson)

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Why health economics?

• Rapid growth in health expenditure
• demographic changes
• technological advance
• changing expectations
• Resources available to health care are scarce
• Choices must be made as to what health care
  should be provided, how it should be provided, in
  what quantities and how it might be distributed

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The role of health economics

• To provide
• a way of thinking
• a set of techniques
• To assist decision making, usually in the health
  care sector, to
• promote
• efficiency
• equity
• Economics is about maximising social benefits
  subject to the
• constraint imposed by resource availability

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What is economics?

• The study of how men and society end up
  CHOOSING, with or
• 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. (Samuelson)

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What is economics?

• Economics is about allocating scarce resources
• Three fundamental elements
• scarcity needs, wants and demands are greater
  than resources available to meet them
• choosing analyses and assists decision making
• alternative uses opportunity costs

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Scarcity

• Resources (land, labour, capital) are limited
• Therefore there is some maximum quantity of
  health care that can be produced at any one time
• Potential uses of those resources are unbounded
• No health care system has achieved levels of
  spending sufficient to meet all wants for health
  care
• Choices must be made as to what health care
  should be provided, how it should be provided, in
  what quantities and how it might be distributed

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Opportunity costs

• By choosing to use resources in one particular
  way, other opportunities for using those
  resources are foregone
• The opportunity costs of committing resources to
  produce a good or service is the benefits forgone
  from those same resources not being used in their
  next best alternative

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Opportunity cost of IVF

• One course of IVF treatment is 2700. Three
  courses of IVF
• (_at_8100) increase probability of pregnancy by
  30. Good
• value for money?
• Opportunity costs? Benefits of
• 1/3 of a cochlear implant
• 1 heart bypass operation
• 11 cataract removals
• 150 MMR vaccinations
• 1/1000 of a challenger military tank
• 50 of a junior school teaching assistant for a
  year
• 2000 school dinners

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Opportunity cost

• From a limited budget, the most efficient mix of
  services to fund will be that which generates the
  greatest aggregate benefit
• The aim of economics is to ensure that we do
  those activities whose benefits outweigh their
  opportunity cost (i.e. we do the most beneficial
  things with the resources at our disposal)

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Margin

• Often question is not whether or not to provide a
  service
• But whether to increase or decrease the number of
  services
• Marginal analysis
• Study of consequences of small changes in a
  variable or variables

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Screening for cancer of the colon

• Stool is tested for the presence of occult blood
• Proposal was for six sequential tests
• Neuhauser and Lewicki analyzed the proposal
  assuming
• a population of 10,000 of whom 72 have colonic
  cancer
• each test detects 91.67 per cent of cases
  undetected by the previous test

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Cases detected
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Costs of 6 sequential tests
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Incremental/marginal costs