Health Economics

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Health Econ Basics - Money Matters Medically

  • Health Economics: Application of economic principles (scarcity, choice, efficiency) to health and healthcare.
  • Key Concepts:
    • Scarcity: Limited resources vs. unlimited health needs/wants, forcing choices.
    • Opportunity Cost: Value of the next best alternative forgone. E.g., MRI funds vs. primary care services.
    • Efficiency:
      • Allocative: Producing services society values most. ('Doing the right things').
      • Technical/Productive: Producing services with least resources. ('Doing things right').
    • Equity: Fair distribution of health and healthcare.
      • Horizontal: Equal treatment for individuals with equal needs.
      • Vertical: Appropriately unequal treatment for individuals with different needs.

⭐ Opportunity cost is fundamental: every healthcare decision involves a trade-off.

Healthcare Markets - Peculiar Patient Puzzles

  • Healthcare markets differ significantly from standard economic markets.
  • Information Asymmetry: Patients possess less knowledge than providers, creating a principal-agent relationship. This can lead to inefficient choices.
  • Externalities:
    • Positive: Vaccination benefits community beyond the individual.
    • Negative: Antibiotic overuse contributes to resistance, affecting all.
  • Supplier-Induced Demand (SID): Providers may influence patient demand for services, potentially driven by financial incentives. 📌 Roemer's Law: "A built bed is a filled bed."

    ⭐ Information asymmetry is a key driver of supplier-induced demand.

  • Uncertainty: Regarding illness onset, treatment needs, and outcomes.
  • Third-Party Payers: Insurance companies and government dominate, affecting price sensitivity.
  • Demand: Often urgent, irregular, and price inelastic.
  • Supply: Restricted entry (licensing), specialized inputs, geographical disparities.

Economic Evaluation - Value Vision Verdicts

Economic evaluation systematically compares costs and consequences of ≥2 health interventions to assess efficiency and value.

  • Types of Evaluation:

    • Cost-Minimization Analysis (CMA): Outcomes proven equivalent; select least costly option.
    • Cost-Effectiveness Analysis (CEA): Outcomes in natural/clinical units (e.g., life-years gained, BP reduction). Uses Incremental Cost-Effectiveness Ratio (ICER): $ICER = (Cost_A - Cost_B) / (Effect_A - Effect_B)$.
    • Cost-Utility Analysis (CUA): A subtype of CEA; outcomes measured in utility-based units like QALYs or DALYs. Uses ICER: $ICER = (Cost_A - Cost_B) / (QALY_A - QALY_B)$.
    • Cost-Benefit Analysis (CBA): Both costs and benefits valued in monetary terms. Results as Benefit-Cost Ratio (BCR) or Net Benefit.
  • Key Metrics:

    • QALY (Quality-Adjusted Life Year): Measures disease burden, incorporating quality and quantity of life. 1 QALY = 1 year in perfect health. Calculated as: Years of Life × Utility Score (0=death, 1=perfect health).
    • DALY (Disability-Adjusted Life Year): Measures overall disease burden; sum of Years of Life Lost (YLL) due to premature mortality and Years Lived with Disability (YLD).

Decision tree for healthcare interventions

⭐ CEA is the most frequently utilized method for economic evaluation in healthcare resource allocation decisions globally and in India.

Health Financing India - Rupee Routes & Risk Pools

  • Rupee Sources (NHA 2019-20):
    • Govt. Health Expenditure (GHE): 40.6% of Total Health Expenditure (THE); 1.35% of GDP.
    • Out-of-Pocket (OOP): 47.0% of THE (major share).
    • Private Health Insurance: 6.6% of THE.
    • External Aid/NGOs.
  • Risk Pooling: Spreads financial risk of illness across groups.
    • Mechanisms: Taxation (Govt. funding), Social Health Insurance (e.g., ESIS, CGHS), Private Health Insurance, Community-Based Health Insurance.
  • Flagship Scheme - Ayushman Bharat PM-JAY:
    • Covers ~12 crore vulnerable families.
    • 5 lakh/family/year for secondary & tertiary care hospitalisation.
    • Cashless & portable across India.

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⭐ National Health Policy 2017 aims to ↑ public health expenditure to 2.5% of GDP by 2025 from the current ~1.35%.

High‑Yield Points - ⚡ Biggest Takeaways

  • Master economic evaluations: CEA, CUA (uses QALYs), CBA for resource allocation.
  • Opportunity cost: Value of the next best alternative foregone in decision-making.
  • QALYs & DALYs: Key metrics for measuring health outcomes and disease burden.
  • Willingness-To-Pay (WTP) is crucial in CBA for valuing health program benefits.
  • Identify direct, indirect, & intangible costs of illness and healthcare interventions.
  • Moral hazard & adverse selection: Primary challenges in health insurance markets.
  • National Health Accounts (NHA) track a nation's health expenditure sources and uses.

Practice Questions: Health Economics

Test your understanding with these related questions

Which of the following is NOT a core component of the WHO's global STI control strategy?

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Flashcards: Health Economics

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Doctor-population ratio is an example of _____

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Doctor-population ratio is an example of _____

Health care delivery indicators (Utilization rate/Health care delivery indicator)

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