Question

Do an essay on overview of health economic principles

Answer 1

ANSWER

• There is a growing demand for economic evaluation of new therapeutic interventions to provide health care decision makers with information on the relative value for money offered by alternative treatments. We review the rationale for economic evaluation and distinguish between 4 analytic techniques: cost minimization analysis, cost effectiveness analysis, cost utility analysis, and cost benefit analysis. Each technique is illustrated with an example from the literature

health economic principles

1. Production, resources, scarcity and opportunity cost

• The definition of economics above includes the term to produce, emphasising that economics deals with both health and health care as a good or service that is manufactured, or produced. All production requires the use of resources such as raw materials and labour, and we can regard production as a process by which these resources are transformed into goods
• The inputs to this productive process are resources such as personnel, equipment and buildingsland and raw materials. The output of a process using health care inputs, such as health care professionals, therapeutic materials and clinics, could be an amount of health care of a given quality that is provided, for example. How inputs are converted into outputs may be affected by other mediating factors, for example the environment in which production takes place, such as whether the clinic is publicly or privately owned.
• An assertion of economics is that scarcity, and the resulting necessity to choose between different uses for productive resources, applies everywhere in an economy and cannot be avoided. This is the premise underlying a key economics concept called opportunity cost. Producing any economic good or service means that the scarce resources that are used to create it cannot be used to produce other goods or services. If those other goods or services had been produced, they would have generated benefits to those who consumed them.
• Costs in economics usually means opportunity costs. This concept is quite different to the more familiar idea of financial costs, which is the cost of goods, services and scarce resources in terms of the money that must be paid to obtain them

2)Markets, Demand and Supply

• Economics analyses markets mainly through what is called price theory. A market brings together the demand for goods from consumers and the supply of those goods from suppliers. Consumers and suppliers base their buying and selling on the price that they must pay or will receive. Price therefore acts as a signal to both groups as to what they should do in the market. Consumers will want to buy more if the price is lower, but suppliers will want to sell more if the price is higher. If prices are too high, then suppliers will not be able to sell all that they want to and may lower the price. If prices are too low, there will be consumers who cannot buy all that they want. As a result, consumers may bid more, or suppliers may see the possibility that they can raise their price but still be able to sell all that they want. Simple observable indicators like these, the presence of excess demand or supply, determine how much of a good or service is sold and the price that it is sold for.
• f we also assume that suppliers aim to make as much income as possible from what they sell, then they will wish to keep down the costs of production by choosing the most efficient production methods. So, markets also help to determine how goods are produced as well as what and for whom.

3) Demand for health care, demand for health and need

• If health care is only demanded in order to improve health, is there then a demand for health improvements? Health can indeed be regarded as a good, in fact a fundamental commodity that is essential to people’s well-being, leading to a demand for improvements in it. Health does have characteristics that more conventional goods have; it can be manufactured; it is wanted and people are willing to pay for improvements in it; and it is scarce relative to people’s wants for it. However, its relationship with the demand for health care is not one-to-one, because although health is affected by health care, it is also affected by many other things and it also affects other aspects of welfare, not just health care.

4)Efficiency and equity

• he technical definitions of efficiency described here use the labels given by Morris, Devlin, Parkin and Spencer . Economists are specialists in the analysis of efficiency and largely agree about what it means, and about definitions of different types of efficiency. Unfortunately, however, the labels that they give to those types vary. The same concept may be given different names and the same name may be given to different concepts. So, if other texts are consulted, it may be wise to check what is meant if efficiency is referred to, especially if the terms technical or allocative efficiency are used.
• Equity is always an important criterion for allocation of resources. However, it is observable that people attach more importance to equity in health and health care than they do to many other goods and services. Equity is an important policy objective in almost every health care system in the world. Economists have created some very useful ways of measuring equity, but apart from that economic analysis of equity is less clear than the analysis of efficiency and there is lower consensus amongst economists about it.

5)MARGINS

• Margin means the extra unit included to produce one more unit of output. To produce the health care goods and services that extra unit which is produced to give an output.