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Summary of 54 pages for the course HPI4001 Economics of Healthcare at UM
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Table of contentCase 1 – What is economics in healthcare?..................................................................................................... 1
Case 2 – The economics of innovation............................................................................................................ 6
Case 3 – Economic evaluation of health interventions..................................................................................11
Case 4 – Innovations from an organizational (economics) perspective..........................................................19
Case 5 - Pharmaceuticals as typical product innovations in health care.........................................................25
Case 6 - Patient involvement in healthcare decisions/HTA............................................................................48
Case 1 – What is economics in healthcare?
What is economics?
Economics is a study of choices under conditions of scarcity. It’s about a society with
unlimited needs and limited resources. Economics is the study of how our society as a whole,
uses its resources.
Some key economic concepts
Scarcity is related to the tension between unlimited needs and limited possibilities to fulfil
those needs.
Economics is thus concerned with the allocation of scarce resources among competing
demands.
All resource uses have an opportunity cost (=cost of the best alternative option)
Economists study society and the choices people make.
What is health economics?
Health economics is an applied field of economics. It studies the choices/behavior of
individuals, healthcare providers, public and private organizations, and governments in
health decision-making. They study how (scarce) resources are allocated to and within the
healthcare system.
What is health care economics?
The subject of analysis is the health (medical) care industry, not health.
,Health care influences health but also commodities including nutrition, sanitation, leisure
time, etc.
Arrow (1963) is regards as the birth of health economics.
Differences between economics and health economics
- Demand for health care is a derived demand (for health) (the demand for a good or
service that results from the demand for a different, or related, good or service.)
- Existence of externalities (these refer to costs or benefits of consumption/production
of a good for others than the direct users)
- Informational asymmetries between health care providers and patients
- Uncertainty with respect to both the need for and effectiveness of health care
- (Difference in behavior of physician and businessman. Physicians are dealing with more ethical
restrictions and there shouldn’t be a limitation by financial consideration)
What is the Williams schematic overview?
A = Determinants of health
B = Measurement of health. It meets with
utility. If you know how people value health,
you can say more about the demand.
C = Demand for healthcare. This is affected by
the determinants of health and the nature of
health itself.
D = The supply of healthcare. Affected by
production (labor and capital). The most
important subject within this box is incentive to
change that are good for the efficiency and
quality.
E = Economic evaluation at treatment level.
,F = Market equilibrium. If efficiency is the policy objective, the result of the economic
evaluation informs the choice suppliers and purchasers and the creation of the market
equilibrium.
G = Evaluation of the whole system infers the identification of system objectives, as efficient
and equity as possible. For example, and health care system
H = Evaluation of mechanism to change the system. In particular how budgetary controls,
workplace norms, regulations and incentives affect performance and how they interact.
Closely connected to G; once the evaluation is done, decision-makers in the health care
system are able to make choices which can make the health system more efficient
Market failures
Health generates market failures. In a good market there is certainty, no information
asymmetry and a direct demand.
In a good market you have perfect competition.
In healthcare:
, If one or more of efficiency conditions are not fulfilled, then we are faced with a market
failure
Market failure leads to inefficiency and sub-optimal outcomes.
Government intervention
Government interference in healthcare
1. Presence of externalities (e.g., passive smoking, vaccination) smoking bans
2. High research and development cost patient protection
3. Market power (e.g., monopoly) drug price regulation
4. Nature of goods (e.g., collective goods such as public health program) national
vaccination program
5. Uncertainty Insurance
Paradigm
Paradigm, a set of universally recognized principles, methodological processes and cultural
concepts that refers to the work of the “scientific community” of a certain era. This will
become normal science, namely a phase in which scientists appear committed to
consolidating, confirming and developing existing paradigms by solving contradictions and
“puzzles” as they arise.
Origin, present and future paradigms of health economics
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