Importance of Health Economics

Health economics can be described as an explicit branch of economics that is concerned with the matters related to consumption of the healthcare and health provisions. The subject of health economics also applies to the wide topics of health care. However, broadly the health economics include how society allocates the resources among the other alternatives. The scarcity of the resources also provides a foundation for the economic theory. The health economics addresses the questions such as how the goods and services will be produced? How it will be produced and the it will be received? Health economics uses some of the methods and concepts of the economics to explain how people make decisions regarding the use of health care and health behaviours. Health economics also provides the framework of how the society will be allocating the health resources so that the demands of the people can be met with limited amount of resources. Health economics also can be utilized in meeting the needs of healthcare services and disease prevention and health promotion (Santerre and Neun 2012). This study will examine the health care from the economic perspective and it will explain the economic thinking required in the decision making in healthcare.

Even thirty years ago, there used to be very limited option of treatment choices for the patients and patients mainly used to depend onto the decisions of the doctors. The values the contributed to the decision making process was entirely implicit and it was determined by the doctors. Thus, against a background that had very limited amount of the health care resources, the consumers need to have wide array of intervention options and the consumers must be empowered as well. This will promote decision making process as a fair and open process (Phelps 2016).

The three major principles that are used in the economic analysis of the health economics are as follows:

• Marginal Analysis- the formal relationship between the intervention plan and the resources invested and also the benefits that are incurred are found to be rarely linear. The decisions taken are usually to contract or expand the existing services. However, it is important to note that how the increments benefit in comparison to the average benefits and the resource allocation that are incurred by the average costs are considered in the marginal analysis (Goeree and Diaby 2013).
• Perspective- Whenever an economic question is asked, it is important to consider the viewpoint of the major analysis. Thus, it will direct the entire cost and benefits which is vital for the healthcare economics. Within this the perspectives of the patients, society, health authorities, and health organization is considered. Hence, the different types of the perspectives will provide different answer and the decisions on the treatment options must be clear from other viewpoint (Goeree and Diaby 2013).
• Opportunity cost- health economists are also exhibit different kind of thought process that stresses on the value in comparison to the accountants that stress on the money. When the budget is finite, the resources that are invested in to one area is at the cost of the lost opportunity in one area. while it is important to note that the resources must be valued because when it is invested in one areas, losses are incurred in another area and it turns into a lost opportunity (Goeree and Diaby 2013).

The incorporation of economics in healthcare has grown into an established and professional economics. There are many economic concepts that can be used in healthcare and some of them includes the risk benefit analysis, cost benefit analysis and cost effectiveness. The efficiency involves the basic concept of opportunity costs and this includes the value that have been sacrificed in pursuing the alternatives that could have been pursued with the same type of resources.

Cost-benefit analysis- In the cost benefit analysis an evaluation is conducted between the intervention and the associated consequences which involves both the resulting benefits and the costs that are expressed in terms of money. The cost benefit analysis provides two or more treatment alternatives is compared with the monetary benefits. The monetary valuations of the benefits are obtained commonly through the discrete choice of experiments and willingness to pay surveys. The cost benefit is used commonly in the health technology due to the issues of associating the health outcomes with the monetary values. Majority of the commonly used cost benefit analysis are used to access the big capital intensive development projects (such as the new hospital facilities). It also includes the interventions that emphasize on improving the access to the services or the waiting services (Carande-Kulis et al. 2015).

Major Principles of Healthcare

Risk benefit analysis- The risk benefit analysis makes an analysis of the risk that reduces the quantity of life and the quality of life. in statistical terms the risk is considered to be an expected loss. The risk benefit analysis provides a potential of the potential treatment efficiency and the all the possible types of the risks of a particular patient. It is important to note that there are some types of the diseases that has high rates of the mortality. Thus, it might be beneficial if the higher amount of risk is taken for a therapy. Diseases that are found to be symptomatic and also does not jeopardize the overall health of the patient, it has to be ensured that the risks are less than the benefits (Brazier et al. 2017).

Cost effectiveness- The cost effectiveness analysis can be described as a tool that aids in the decisions in the medical care. The method employed in comparing the cost and the effectiveness of the alternatives. The main goal of the of the cost effectiveness is to analyse and determine the cost of an intervention that justifies the cost. Cost effectiveness not only involves the cost but it also assigns a value to the outcome. However, the cost benefit analysis is not properly implemented in the healthcare system. It is important to highlight that the decision makes often consider a treatment procedure without verifying its cost effectiveness. Even if the cost effectiveness of a particular analysis is carried out the decision makers are unable to interpret the data properly and they might even be unwilling to agree with the data sets. Hence, the cost effectiveness has its limitation and still they are used to inform the decision makers (Sanders et al. 2016).

The price theory provides a space where the price of specific service or good depends on the relationship between the supply and demand. The theory of price or the price theory is a microeconomic principle and it uses the concepts of supply and demand so that the actual price of an object or commodity can be pointed out. The price theory has it relations with the health economics, be it the healthcare services, the supply and demand of a particular medicine. The main goal of the price theory is to achieve an equilibrium or a balanced position among the quantities of the goods and the services. The concept of the price theory provides a scope for the adjustments and also for the market conditions to change. Supply can be described as the service or a product that a market provides and includes both the intangible and the tangible. The reason for a change or alteration in the change in the potential number of the customers is that they emphasize on the finite number of the resources. Whereas, demand can also vary depending on a variety of the factors if the improved version of a medicine or an improved version of the healthcare service is available in the healthcare. Thus to achieve a balanced status, the main goal is to locate the price point and the number of the items available (Friedman 2017).

Economic Concepts in Healthcare

The biggest challenge that the national health care systems face is the financial sustainability and challenges arise due to its inability to cater to the needs of the rising demand in healthcare. Even it is mandatory to ensure that the access to the healthcare is in accordance with the health and the legal guidelines present in a country. Factors like the ageing population, increased life expectancy, increased prevalence of the non-communicable chronic diseases. The rising number of actions from the companies in the market and the advent of the new technologies has rendered the process complex (Billé and Arbia 2013).

The explanatory work of Kenneth Arrow has shown that there are differences between the medical care and the other products that targets the economic analysis. It has been acknowledged worldwide and the work has to the creation of health care services in several countries. The medical care market has become unpredictable and inconsistent that demands services from the individuals even if the bodily integrity get affected. It has been seen that there are some risks of death that can jeopardize the physical activity of the individuals and it reduces the physical capacity. From the management point of view, the complex economic evaluations require high quality resources like the time required by the researchers from the research institutions, and the specialized personnel. In certain cases, the public administration can conduct a procurement process involving a commission studies. The support for the decision making incorporates the certain technologies into the system of healthcare. The decision making process generally acts at the designated intervals and it is entirely different from the daily routine of the system decisions. This involves the pressure from the groups of interests and the policy definitions are also devised. The decision making process also includes the funding of the system, services rendered, reimbursement values, services and costs of the procedures (healthknowledge.org.uk 2018).

A study was also conducted in Australia which intended to describe how the health care departments and the other governmental departments in the New South Wales consider the economic recommendations in the preparation of the programs and the policies. Survey conducted in this field has shown that the health economics plays a major role in the process of decision making. However, it is highlighting to mention that only one healthcare department was using knowledge in the process of decision making on a regular basis. To fulfil the needs of the healthcare economics, the healthcare departments listed the following within the internal environment. The components of the internal environment include the health economic units, training programs framed for the health economic specialists, general technical staffs that are qualified in the health economics, training of the technical staffs, evaluation from the health economists or the economists. Whereas the external environment included the cooperating research centres, commissioning research conducted through the admission tests, consultancy regarding products. The study has also revealed that not all the mechanism that supports the decision making process is equally used. Issues pertaining to the cost and the effect of the interventions that are commonly raised by the governments are implemented locally, which was rather found to be hard to answer by the external groups. It is also important to mention that the managers try to seek the answers that are very practical and that might not entirely be coherent with the interests of the external groups (Vieira 2016).

Conclusion:

From the above discussion it can be concluded that, the health economics addresses the questions such as how the goods and services will be produced? How it will be produced and the it will be received? Health economics uses some of the methods and concepts of the economics to explain how people make decisions regarding the use of health care and health behaviours. There are many economic concepts that can be used in healthcare and some of them includes the risk benefit analysis, cost benefit analysis and cost effectiveness. The efficiency involves the basic concept of opportunity costs and this includes the value that have been sacrificed in pursuing the alternatives that could have been pursued with the same type of resources. The price theory provides a space where the price of specific service or good depends on the relationship between the supply and demand. The theory of price or the price theory is a microeconomic principle and it uses the concepts of supply and demand so that the actual price of an object or commodity can be pointed out.

Reference:

Billé, A.G. and Arbia, G., 2013. Spatial discrete choice and spatial limited dependent variable models: a review with an emphasis on the use in regional health economics. arXiv preprint arXiv:1302.2267.

Brazier, J., Ratcliffe, J., Saloman, J. and Tsuchiya, A., 2017. Measuring and valuing health benefits for economic evaluation. OXFORD university press.

Carande-Kulis, V., Stevens, J.A., Florence, C.S., Beattie, B.L. and Arias, I., 2015. A cost–benefit analysis of three older adult fall prevention interventions. Journal of safety research, 52, pp.65-70.

Friedman, M., 2017. Price theory. Routledge.

Goeree, R. and Diaby, V., 2013. Introduction to health economics and decision-making: is economics relevant for the frontline clinician?. Best Practice & Research Clinical Gastroenterology, 27(6), pp.831-844.

healthknowledge.org.uk, 2018. Techniques of economic appraisal (including cost-effectiveness analysis and modelling, cost-utility analysis, option appraisal and cost-benefit analysis, the measurement of health benefits in terms of QALYs and related measures e.g. DALYs). [online] Health Knowledge. Available at: https://www.healthknowledge.org.uk/public-health-textbook/medical-sociology-policy-economics/4d-health-economics/economic-appraisal [Accessed 4 Dec. 2018].

Phelps, C.E., 2016. Health economics. Routledge.

Sanders, G.D., Neumann, P.J., Basu, A., Brock, D.W., Feeny, D., Krahn, M., Kuntz, K.M., Meltzer, D.O., Owens, D.K., Prosser, L.A. and Salomon, J.A., 2016. Recommendations for conduct, methodological practices, and reporting of cost-effectiveness analyses: second panel on cost-effectiveness in health and medicine. Jama, 316(10), pp.1093-1103.

Santerre, R.E. and Neun, S.P., 2012. Health economics: Theory, insights, and industry studies. Cengage Learning.

Vieira, F.S., 2016. Reflections on the role of health economics units regarding national health care systems. Saúde e Sociedade, 25(2), pp.306-319.