HEALTH
ECONOMICS
Dr. NASSER AL JARALLAH
HEALTH ECONOMICS
5)
INTRODUCTION TO ECONOMICS.
THE BASIC ECONOMIC
QUESTIONS.
BASIC ECONOMIC CONCEPTS.
EFFICIENCY.
DEMAND AND SUPPLY ANALYSIS.
6)
THE DETERMINATION OF PRICE.
1)
2)
3)
4)
HEALTH ECONOMICS
THE ECONOMIC ANALYSIS OF
PRODUCTION.
6) THE ECONOMIC ANALYSIS OF
COSTS.
9) MARGINAL ANALYSIS.
10) MARKET STRUCTURES.
11) THE FIRM AND ITS OBJECTIVES.
5)
HEALTH ECONOMICS
MEASUREMENT AND VALUATION
IN HEALTH CARE.
13) FINANCIAL ANALYSIS AND
ECONOMIC APPRAISAL.
14) FINANCING HEALTH CARE.
15) SAUDI NATIONAL HEALTH
SYSTEM.
16) STUDENT PROJECTS.
12)
1. INTRODUCTION TO ECONOMICS
1.a. Economic Definition.
1.b. Three Major Tasks Of
Economics.
1.c. Tools Used In Economic
Analysis.
1.d. Types Of Economics.
1.a. Economic Definition.


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The Economics is the science that deals with the
consequences of resources scarcity.
The discipline of economics deals with use of scarce
resources to satisfy human wants and needs how
best to use the resources available.
Economics is a social science that studies how
individuals and organizations in society engage in
 the production
 distribution and
 consumption of goods and services.
1.b. Three Major Tasks Of Economics.
i.
Descriptive Economics;
 Refers to the identification, definition,
and measurement of phenomena.
 Concerned with determining the nature
of the phenomena as well as obtaining
estimates of their magnitudes.
 No explanation.
1.b. Three Major Tasks Of Economics.
ii.
Explanatory Economics;



Involves explaining and predicting certain
phenomena.
Conducting an analysis in a cause-effect
format.
Performed with the aid of models that
classify various causal factors in a
systematic framework (e.g. the health status
and the price of the medical services).
1.b. Three Major Tasks Of Economics.
iii.
Evaluation;



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Involves judging or ranking alternative
phenomena according to some standard.
An acceptable standard must be obtained.
Based on this standard, alternative ways of
using scarce resources are then ranked.
In choosing the standard, one major
criterion is acceptability.
1.c.Tools Used In Economic Analysis
1.
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•
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Economic Variables;
Examples ( prices, costs, incomes, and
quantities of commodities)
Can be measured along a scale.
Once appropriate unites of measurement
have been chosen ( Riyals, visits, days).
1.c.Tools Used In Economic Analysis
2.
•
•
•
Relationships between economic
variables;
Relationship show how one variables
changes in relation to another variable.
The relationships can be specified in a
causal or non-causal manner.
Causal relationships – if …., then….
1.c.Tools Used In Economic Analysis
3.
•
•
Graphical representation of
relationships;
Step function is solid line relates
diagrammatically to only specified
values.
We can draw a continuous curve joining
all the points specified in the
relationship.
1.c.Tools Used In Economic Analysis
4.
•
•
•
•
The direction of the relationships;
Positive relationship.
Opposite or negative relationship.
Non-relation or constant relationship in
“Y”.
Non-relation or constant relationship in
“X”.
12
10
8
constant Y
positive
negative
constant X
6
4
2
0
1
2
3
4
1.c.Tools Used In Economic Analysis
5.
The slope of the relationships;
6.
The position of the relationship;
7.
The shape of the relationships;
8.
The nature of economic propositions;
1.d. Types Of Economics
 Economics
offers an overall
viewpoint about toward
understanding many problems, all
of which relate to scarcity in one
form or another.
 Economics
can be Macroeconomics
or Microeconomics.
1.d. Types Of Economics
A.
Macroeconomics is the study of aggregate
economic activities, such as:
1. The economy level of outputs;
 We can measure that by some variables
such as; GDP, Rate of depression, Rate of
slackness ..ets.
 Real GDP is the market value of all final
goods and services produced in the
domestic economy during a one year period
measured with constant prices.
1.d. Types Of Economics
Macroeconomics is the study of aggregate
economic activities, such as:
2. Level of national income;
 We can measure that by some
variables such as N.I.
 National income (N.I) is the income
earned by the factors of production.
 Income earned of the sold or
consumed GDP.
1.d. Types Of Economics

Macroeconomics is the study of
aggregate economic activities, such
as:
3. Level of employment;


We can measure that by some variables
such as the rate of unemployment.
The Rate of Unemployment is the
percent of the total labor force which is
unemployed.
1.d. Types Of Economics

Macroeconomics is the study of
aggregate economic activities, such as:
4. General price level;



We can measure that by some variables
such as Inflation or Deflation Rate ets.
Inflation is the annual rate of increase in a
price index.
Deflation is the annual rate of decrease in
the price level.
1.d. Types Of Economics
B.
Microeconomics the study of economic
behavior of individual decision making units
such as:
 Consumers
 resource owners and
 business firms in a free –enterprise
economy.

We can measure that by some studies
such as market , pilot and feasibility
studies.
2.BASIC ECONOMIC QUISTIONS.
2.a. Economic Problem.
2.b. Health Care And Health.
2.c. The Demand For Health Care.
2.d. The Production Of Health.
2.e. Requirements Of Health Services.
2.f. Health Care And Economics.
2.g. Economics And Management.
2.a. Economic Problem
 Economic
problem based on that
because of limited productive
capabilities, there is a need to make
decision about:
what to produce,
how to produce and
 the distribution of out put.
2.a. Economic Problem

Factors of production are
 land,
 labor
 capital
They are the inputs necessary for the
production of good and services .
 The terms “factors of production” and
“economic resources” are interchangeable.

2.a. Economic Problem
The problem is solved by different
ways.
 Capitalism or Free Enterprise.
 Socialism or Communism.
 Islamic or Shari’a.
 Discussion about each one.
2.a. Economic Problem

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1.
2.
3.
Health economics deals with a specific portion of
“the” economic problem, that concerned with health
and health care.
What differentiates health care are;
The very personal and often urgent needs the
service meets.
dealing with pain and suffering and with life and
death decision.
access to the service is often considered to be a
basic human right irrespective of ability to pay.
2.a. Economic Problem

4.
5.
What differentiates health care are;
The many treatments are unproven.
Encouraging the move towards evidence
based medicine where decisions about
medical interventions will be more firmly
based on research evidence about their
effectiveness .
It is not the consumer who demands the
treatment but the doctor acting as the agent of
the patient which rise special problems In
demand and resource allocation studies.
2.a. Economic Problem


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The UK National health service both
purchasing and providing health care.
In 1989 separates the functions of
purchasers and providers with the aim of
introducing greater incentives for
efficiency and greater choice for patients
with less government intervention.
Highly regulated with strict guidelines.
2.a. Economic Problem
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In the USA, less highly regulated, and
determined by market forces.
Positive economics attempts to establish
cause and effect in a scientific manner.
Normative economics is concerned with
establishing the means by which socially
desirable outcomes can be achieved.
Weather the distribution of incomes and
output is equitable health consequences for
patients.
2.b. Health Care And Health.
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One of the basic principles of the public health
care systems is that treatment should be
provided on the base of need.
Rather than on the base of that funds are
available.
And on the base of that equity should be one
of the objectives of the service.
The purpose of health care is to produce an
improvement in health, the maintenance of
good health and or a reduction in suffering.
2.b. Health Care And Health.
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Health care services can be bought and sold,
while health cannot .Health difficult to define
and even more difficult to measure .
According to the world health organization
{WHO} good health is “a state of complete
physical and mental well-being and not merely
the absence of disease or infirmity”.
Poor health in an individual will have an
impact on and may pose threats to others.
2.b. Health Care And Health.
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
Improved health care services thus provide
benefits to society as a whole if they result in
improved health as well as providing benefits
to the individual.
The role of medicine in improving the health
status of the population has been exaggerated
and that factors such as housing, education,
diet, hygiene and standard of living have had
more significant impact on levels of health
than what we conventionally think of as health
services.
2.c. The demand for health care
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The demand for health care services will
depend on the demand for health and on the
perception of the link between health care and
health.
One complication of trying to model or predict
this demand is that individuals value
apparently equal health states differently.
Most health care is carried out by families
within the home.
2.c. The demand for health care


Health care systems may produce outputs
other than health (Comfort, Security, etc).
The demand for health care will also vary
according to the age structure of the
population.
The production of health


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It is assumed that the individual seeks to
maximize life time utility.
Health care is only one input into the
production of health.
Weather privately insured or dependent upon
public services, we seek a comprehensive
service for examination and diagnosis.
The production of health
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1.
2.
3.
4.
We expect to be effective public and environmental
health services which will protect us from infectious
diseases
A diverse and sometime conflicting set of interests
may happened between;
Those who pay for health services.
Those who provide them.
Those who shape them through strategic and
operational management.
Those who would like to benefit from them, if
necessary.
Requirements of health
services
1.
2.
3.
4.
5.
6.
Economy.
Effectiveness.
Efficiency.
Value for money {VFM}.
Equity.
Ethical issues.
Requirements of health
services
1.
Economy;
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We would like the services to be inexpensive.
Somebody always pays either directly or indirectly.
2.
Effectiveness;

We expect the service to be effective we want each
procedure to produce perceptible health gains {or
reductions in suffering}.
The evidence based medicine beginning to influence
health care providers.

Requirements of health
services
3.
Efficiency;

We expect our services to be efficient. If we
can deliver an equally effective service in
different ways then we would want to choose
the least expensive.
4.
Value for money {VFM};

These three requirements, economy,
effectiveness and efficiency, come under the
heading of value for money {VFM}.
Requirements of health
services
5.
Equity;

Three broad ways of defining equity in health care;
Equality of health status attained.
Equality of use of health care {for equal need}.
Equality of access to health care {for equal need}.
Horizontal equity the principal of equal treatment for
equal need.
Vertical equity provision of unequal treatment for
unequal need.
A.
B.
C.
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Requirements of health
services
6.
Ethical issues;

The behavior of doctors and other health
care professional and may put them into
conflict with those who manage resources.
The doctor could manipulate the situation for
financial gain.
The patient is protected from these abuses
by the doctor's ethical and professional
codes of conduct.
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Health care and economics
1. Which goods and services to
produce?
 E.g. How many resources should
be allocated to the different
specialties?. Should cosmetic
surgery or infertility treatment be
provided at public expense?
Health care and economics
2. How to produce the goods and
services?
 E.g. Will the mentally ill be cared
for in small community based units
or in large hospitals?. What
proportion of surgical procedures
will be carried out on a day care
basis?
Health care and economics
3. Who receives the good and
services?
 E.g. Should the state provide
health services only for the poor?
When funds are scare will
preference be given to patients of
fund holding practitioners?
Basic economic questions

Whatever the methods of
finance organization and
delivery, health care systems
throughout the developed world
have been facing the same
problems of ever increasing
demand and rising costs.
Basic economic questions
This increasing pressure on
resources has had many sources
which include;
1. Medical advances, such as organ
transplants and gene therapy, have
provided new treatments and
therefore created greater
expectations and new needs.

Basic economic questions
2.As life expectancy
increase, more resources
are required for medical
treatments and
continuing care for the
elderly.
Basic economic questions
3.Changes in family
structure in the
developed world mean
that it is ever more likely
that the elderly will not be
cared for by their families.
Basic economic questions
4.Populations in developed
countries have higher
expectation about levels
of health and have
demanded more and
better health care.
Economics and management
 These days managers
are required to be
accountable.
 They have to be able to
provide justification for
their decisions.
Demand and Supply
In a market economy , output is distributed
through a system of prices.
 Each good and service produced is sold to
those who are willing and able to pay the
market price.
 The market demand for a good or service is
presented as a schedule which relates the
number of units (quantities) that will be
purchased at alternative prices, holding
constant other variables that influence the
purchase decision.

Demand and Supply

Change in market demand is a shift the market
demand curve that results from:
a change in the number of consumers in the
market consumer preferences
consumer money income
the price of a substitute commodity
the price of a complementary commodity.
Demand and Supply

Change market supply is a shift of the market
supply curve that results from:
 a change in the number and or size of
producers.
 a change in the technology a change in the
price of a factor of a production
a change in the price of other commodities
used in production.