Economics of Healthcare
Used literature (!)
Tutorial 1:
- Arrow, K. J. (2001). Uncertainty and the welfare economics of medical care. 1963. Journal of health
politics, policy and law, 26(5), 851-883.
- Savedoff, W. D. (2004). Kenneth Arrow and the birth of health economics. Bulletin of the World
Health Organization, 82(2), 139-140
- Culyer, A. J., & Newhouse, J. P. (2000). Introduction: The State and Scope of Health Economics. In A.
J. Culyer & J. P. Newhouse (Eds.), Handbook of health economics Vol. 1A (pp. 1-8). Amsterdam:
Elsevier. SL W 74
- Edwards, R. T. (2001). Paradigms and research programmes: is it time to move from health care
economics to health economics?. Health economics, 10(7), 635- 649.
Maynard, A., & Kanavos, P. (2000). Health economics: an evolving paradigm. Health economics, 9(3),
183-190.
- Pedersen, K.M. (2012), A New Paradigm for Health Economics? Nordic Journal of Health Economics,
Volume 1, no 1: pp. 17-27.
- Hansen et al. (2015). The future of health economics: The potential of behavioural and
experimental economics. Nordic Journal of Health Economics. 3(1): 68-86.
- Jakovijevic, M. & S. Ogura (2016), Health Economics at the Crossroads of Centuries – From the past
to the future. Frontiers in Public Health, 4(15), doi: 10/3389/pubh/2016.00115
Tutorial 2:
- Pouvourville, G. de (2001), Innovation as a major research issue in health economics, HEPAC, 2, 139-
141 (Springer Verlag)
- Swann, G.M. P. (2009), The Economics of Innovation. An introduction. Edward Elgar: Cheltenham
UK; Northhampton, MA, USA: chapter 1, 2, 3, 4, 5 and 10.
- Antonelli, C. (2009), The economics of innovation: from the classical legacies to the economics of
complexity, Economics of Innovation and New Technology, 18: 7, 611-646.
- ‘Defining and characterizing innovation in general’, chapter 2 from: Ferrandiz, JM, A Mordoh, J.
Sussex (2012). The many faces of innovation. London: Office of Health Economics, pp. 12-16.
- Dorward, A., J. Kydd, J. Morrison, C. Poulton, L. Smith (2000). New Institutional Economics: insights
on innovation dissemination and uptake, pp. 97-103, In: Sustaining change: proceedings of a
workshop on the factors affecting uptake and adoption of innovation. Hainsworth. S.D. and S.J. Eden-
Green (eds.), Imperial College at Wye, Kent, UK.
Tutorial 3:
- Erntoft S (2011). Pharmaceutical priority setting and the use of health economic evaluations: a
systematic literature review. Value in Health; 14(4):587-99.
- European Medicines Agency (2019). From laboratory to patient: the journey of a centrally
authorised medicine.
- European Parliament. Toward a harmonised EU assessment of added therapeutic value of medicine.
2015. Chapter 1 + 2.
- Hutton, J, Trueman, P, & Henshall, C. (2007). Coverage with evidence development: an examination
of conceptual and policy issues. International Journal of Technology Assessment in Health Care,
23(4), 425-432.
,- Taylor RS, Drummond MF, Salkeld G, Sullivan SD. (2004). Inclusion of cost effectiveness in licensing
requirements of new drugs: the fourth hurdle. BMJ. 2004; 329(7472): 972–975.
- Rawlins MD (2012). Crossing the fourth hurdle. British Journal of Clinical Pharmacology.73(6):855-
60.
- Walker S, Sculpher M, Claxton K, Palmer S (2012). Coverage with evidence development, only in
research, risk sharing, or patient access scheme? A framework for coverage decisions. Value in
Health.;15(3):570-579
Tutorial 4:
- Jenna M. Evans, G. Ross Baker, Whitney Berta and Jan Barnsley (2013), The evolution of integrated
health care strategies. Annual Review of Health Care Management: Revisiting the Evolution of Health
Systems Organization. Advances in Health Care Management, Volume 15, 125-161.
- M.J. Laugesen and George France (2014). Integration: the firm and the health care sector. Health
Economics, Policy and Law, 9, pp 295-312.
- Machta RM, KA Maurer, DJ Jones, MF Furukawa, EC Rich (2018), As systematic review of vertical
integration and quality of care, efficiency, and patient-centered outcomes. Health Care Management
Review, 45(1), Jan-March 2018.
- Post B, T. Buchmueller, AM Ryan (2017), Vertical integration of Hospitals and Physicians: Economic
Theory and Empirical Evidence on Spending and Quality. Medical Care Research and Review,75(4),
pp. 399 - 433.
- Hall, P. (1994), Innovation, economics and evolution. Theoretical perspectives on changing
technology in economic systems. Hertfordshire: Harvester Wheatsheaf. Chapter 5: Innovation and
the firm: pp. 167-175 and pp. 204-212.
- Mick, S. & D.A. Conrad (1988), The decision to integrate vertically in health care organizations,
Hospital and Health Services Administration, Fall, 33(3): 345-360.
- Young, S. H. (2003). Outsourcing and benchmarking in a rural public hospital: does economic theory
provide the complete answer? Rural Remote Health, 3, 124.
Tutorial 5:
- Chisholm D, Evans D. Economic evaluation in health: saving money or improving care? Journal of
Medical Economics 2007; 10: 325–337
- Drummond M, Sculpher M, Claxton K, Stoddart G, Torrance G. Methods for the economic
evaluation of health care programmes. 2015. Fourth edition. Oxford. Chapter 1 and Chapter 4 (until
4.3.2 included)
- Evers, S. M., Goossens, M. E., Ament, A. J., & Maarse, J. A. (2001). Economic evaluation in stroke
research. An introduction. Cerebrovasc Dis, 11(2), 82-91.
- Kernick DP. Introduction to health economics for the medical practitioner. Postgrad Med J. 2003
Mar;79(929):147-50.
- Petrou S, Gray A.Economic evaluation alongside randomised controlled trials: design, conduct,
analysis, and reporting. BMJ. 2011 Apr 7;342:d1548.
- Petrou S, Gray A. Economic evaluation using decision analytical modelling: design, conduct, analysis,
and reporting. BMJ. 2011 Apr 11;342:d1766
- Sculpher MJ, Claxton K, Drummond M, McCabe C. Whither trial-based economic evaluation for
health care decision making? Health-Econ. 2006 Jul; 15(7): 677-87
,Tutorial 1: What is economics in healthcare?
1. What is economics?
Economics is a study of choices under conditions of scarcity. It’s about a society with unlimited needs and
limited resources. All societies face three fundamental questions: (1) what to produce; (2) how to produce
what is to be produced; and (3) how to distribute what is to be produced between individual citizens [2].
Economics is the study of how our society as a whole, uses its resources
2. What is health economics?
Health economics is an applied field of economics. It’s based on four traditional areas of economics:
finance and insurance, industrial organisation, labor and public finance. Policy-oriented research plays a
major role.
In health economics, economics study the choices/behavior of individuals, health care providers, public
and private organizations and governments in health decision-making. They study how (scarce) resources
are allocated to and within the healthcare system.
a. What is the difference with other sectors?
1. Information asymmetry: asymmetry in information the patient or the physician has. Consumer cannot
have all the knowledge to make a perfect choice. Supplier induced demand: supplier makes the decision.
Beside this, there are strict rules before you can be a healthcare provider due to licensing laws and
standards of medical schools.
2. Uncertainty with respect to both need and effectiveness of healthcare. There is big product uncertainty
in quality of care since you can never know for 100% if it’s the best (most effective) possible. You are not
100% sure if the medicine has the right effect.
3. Difference in behavior of physician and businessman. Physicians are dealing with many more ethical
restrictions and there shouldn’t be a limitation by financial considerations.
4. Derived demand: the demand for health care is a derived demand for being healthy (you don’t want to
have the drugs yourself, you want to have the effect of the drug). Health care is an intermediate good that
has no intrinsic value in itself, but has value towards health. Which in turn, health satisfies other functions
such as work, leisure and welfare. The demand for healthcare is, therefore, derived (for health and the
value of health for a person). Besides this, the demand is unpredictable and irregular. Care is only
necessary when the person is dealing with illness.
5. Externalities: costs or benefits of consumption or production of a good for others than the direct user,
can be positive or negative. For example; smoking or vaccination.
The above points are considered as market failures! Health generates market failures! In a good market
there is certainty, no information asymmetry, there is a direct demand.
Special characteristics of healthcare market according to Arrow
1. Demand. The demand of healthcare is not predictable. People only need healthcare when they are ill
and illness is hard to be predict. Second, illness can cause death, permanent injuries, and loss of the ability
to earn. Given that our life goals need us to be alive, and relatively healthy, it is of supreme importance to
us to be healthy.
2. Expected behavior of the physician. The customer cannot test the product before consuming it, and
there is an element of trust in the relationship. The physician must honestly take the patient's interests
into consideration and act to further them instead of acting to pursue his own private gain. This is the
,same with a barber, but there are much higher ethics when you look at the supply of a physician.
3. Product uncertainty. With many commodities, you can learn from your or other's experience about the
nature of the good purchased. With illness, it is more difficult. You don't know beforehand what you will
be getting. The physician is aware of this, and knows more than the patient. Arrow says this is uncommon.
4. Supply conditions. The supply of is commodity is tied to the expected return from its production. For
healthcare some elements insert a wedge between returns and supply. One is licensing, which restricts
supply. This policy tends to be justified by the desire to provide a minimal level of quality.
5. Pricing practices. Hospitals charge the rich more and the poor less (even nothing for the truly poor).
There is also opposition to pre-payment from the side of hospitals, and to closed-panel practice (binding
the patient to a particular group of physicians).
Vision of Kuhn
Paradigm, namely 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. Kuhn believes that normal
science enters a crisis due to a series of “anomalies”, i.e. new and unexpected events, which scientists
then attempt to adapt with varying degrees of success within “the prefabricated and relatively rigid
boxes” provided by the existing paradigm. However, these actions, repeated over time, cause the old
system to weaken from the inside, producing a true and proper crisis. After this, the revolutionary
breakdown comes in, namely the time when there is a true and proper turning point that leads to the
abandonment of the old paradigm and the arrival of a new way of looking at the world. Scientists, when
faced with multiple problems that they cannot solve by applying a certain paradigm, question the
principles followed and accepted up until that time as “dogmas” and go on the search for a new
paradigm. Everything, therefore, has to be rethought: basic concepts, methods and problems.
b. What is the difference between health economics and health care economics?
In health care economics, the subject of analysis is the health (medical) care industry, not health.
Edwards (2001) discussed the distinction between health care economics and health economics. He
argued that health economics has been mainly health care economics, (i.e. the economics of health care
markets, such as hospital services, medical services, pharmaceuticals). The distinction starts within
demand models. What is relevant: demand for health, or demand for health care? The choice made for
researchers determines the scope of their works.
3. What are the definitions of the following terms? How are they related?
- Scarcity
Scarcity refers to the tension between our limited resources and our unlimited wants/needs. If resources
are insufficient to meet all demands, they are scarce.
So:
• all resource uses have an opportunity cost;
• health and health care demands appear to be infinite;
• resources available for health care are finite.
Economists study society.
- Preferences
Certain characteristics any consumer wants to have in a good or service that makes it preferable to them.
For example, Coca Cola made it more preferable to make a Light version.
, - Choices
Because there is scarcity, you have to make choices.
We believe that society (macro-level) is the result of choices of e.g. individuals (microlevel). Therefore,
economics is a study of choices. We assume people make rational decisions. This does not necessarily
mean that people choose the smartest option, but rather that people choose what they think is smartest.
- Allocation
Resources have to be allocated/divided, because of scarcity. Economics are concerned with the allocation
of scarce resources among competing demands
- Efficiency
The lowest amount of inputs to create the greatest amount of outputs. Efficiency relates to the use of all
inputs in producing any given output, including personal time and energy. Being efficient simply means
reducing the amount of wasted inputs.
- Pareto-optimality (allocative efficiency)
There is no other allocation of resources to services which will make all participants in the market better
off. In other words; there is no allocation of resources or services which make will participants better off
without making at least one person worse off.
You can’t reach this in healthcare since there is no perfect competition there (there will always be market
failures).
- Competition
There are two extreme forms of market structure: monopoly and, its opposite, perfect competition.
Perfect competition is characterized by many buyers and sellers, homogenous product, perfect
information and free entry and exit. Thus, producers in a perfectly competitive market are subject to the
prices determined by the market and do not have any leverages (optimal allocation).
- Utility
Total utility is the aggregate sum of satisfaction or benefit that an individual gains from consuming a given
amount of goods or services in an economy. The amount of a person's total utility corresponds to the
person's level of consumption. Usually, the more the person consumes, the larger his or her total utility
will be. In health, an unit of utility is QUALY’S. or DALY’S.
- Costs and benefits
The benefits (pro) of a given situation or business-related action are summed and then the costs (con)
associated with taking that action are subtracted.
Opportunity costs
All resource uses have an opportunity costs; the cost of the best alternative option. You always need to
make a choice, if you don’t choice A, you need to choose B.
- Resources
Economic resources are the factors used in producing goods or providing services. Economic
resources can be divided into human resources, such as labor and management, and
nonhuman resources, such as land, capital goods, financial resources, and technology.
4. What is William’s schematic overview?
In his diagrammatic representation of health economics, Williams set out a research agenda to
encompass the disparate activities of those of us who have found ourselves ‘doing what health economists
do’.
