NUR 751Healthcare Economics

for the DNPTony Umadhay, PhD., CRNA

Barry University

Health◦ “ a complete state of physical, mental and social

well-being, and not merely the absence of illness or disease”

Economics◦ is the social science that analyzes the production,

distribution, and consumption of goods and services.

◦ offers a framework to study the implications of individual decision making and help define the alternative mechanisms available to improve resource allocation

◦ Scarcity & Uncertainty

What is Health Economics?

studies the supply and demand of health care resources and the impact of health care resources on a population.

determination and allocation of health care resources◦ Medical Supplies◦ Personnel◦ Capital Inputs

Health Economics

are limited or scarce at a given point in time wants are limitless trade-offs are inevitable

◦ each society must make a number of fundamental but crucial choices

Each society must make important decisions regarding the consumption, production, and distribution of healthcare goods and services

Healthcare Resources

1. What mix of nonmedical and medical goods and services should be produced in the macroeconomy?

2. What mix of medical goods and services should be produced in the health economy?

Four Basic Questions

3. What specific health care resources should be used to produce the chosen medical goods and services?

4. Who should receive the medical goods and services that are produced?

Four Basic Questions

What is the best way to allocate resources to different consumption uses?

1. What mix of nonmedical and medical goods and services should be produced in the macroeconomy?

2. What mix of medical goods and services should be produced in the health economy?

Allocative Efficiency

How can society get the maximum output from its limited resources?

3. What specific health care resources should be used to produce the chosen medical goods and services?

Production Efficiency

Is the distribution of services equitable or fair to everyone involved?

4. Who should receive the medical goods and services that are produced?

Distribution Justice

Scarcity of economic resources◦ A society generally wishes to produce the best

combination of goods and services◦ By employing least-cost methods of production

Trade-offs are inevitable◦ Some amount of one good or service must be

given up if the production and consumption of another good or service increases

Implications of the Four Questions

Choices may involve sensitive trade-offs◦ The young vs. the old◦ Prevention vs. treatment◦ Men (prostate cancer) vs. women (breast cancer)

Achieving equity◦ Desirable goal

Redistribution of income – Taxation◦ Creates a disincentive for efficiency

Trade-off between equity and efficiency A nation’s healthcare system normally reflects

the way society has chosen to balance efficiency & equity concerns

Implications of Four Questions

Production and consumption of healthcare goods and services

Distribution of these goods & services to consumers

Barometers of health economy◦ Costs◦ Access◦ Quality

Health Economy

Structural quality◦ Physical and human resources of the medical care

provider Facilities (level of amenities), medical equipment

(type and age), personnel (training and experience), and administration (organization structure)

Quality of Healthcare

Process quality ◦ Specific actions health care providers take on

behalf of patients in delivering and following through with care Access (waiting time), data collection (background

history and testing), communication with the patient, and diagnosis and treatment (type and appropriateness)

Quality of Healthcare

Outcome quality◦ Impact of care on the patient’s health and welfare

as measured by patient satisfaction, work time lost to disability, or post-care mortality rate

Quality of Healthcare

Health – a durable good, or type of capital, that provides services

The flow of services produced from the stock of health “capital” is consumed continuously over an individual’s lifetime

Initial stock of health◦ Depreciates with age

Rate of depreciation Varies from individual to individual Age, physical makeup, lifestyle, environmental factors,

amount of medical care consumed Some are uncontrollable

Health: Economic Perspective

◦ May be augmented by investments in medical services Medical services

May compensate for many deficiencies

Health depends on◦ Quantity of life

Number of life-years remaining◦ Quality of life

Relative concept Death

◦ An individual’s stock of health falls below a critical minimum level

Health: Economic Perspective

Durable good - generates a flow of services Yield utility (satisfaction) Desired for consumption

◦ Utility from an overall improvement in quality of life

Desired for investment purposes◦ Positive state of health

Allocate less time to sickness More healthy days available in the future to work and

enhance your income or to pursue other activities

Why Good Health?

High value on future events◦ Preference for the future◦ Pursue a healthy lifestyle◦ Increase the likelihood of enjoying more healthy

days than a person Maximize utility

◦ Consume: combination of goods & services◦ Includes services produced from the stock of

health

Why Good Health?

“Good” health can be regarded as a fundamental commodity: one of the true objects of people’s wants and for which more tangible goods and services—such as health care—are simply a means to achieve it.

Formulating the basis for the demand for health provides the basis for the demand for health care.

Health as a Form of Human Capital

A key difference is that because health is not tradable, it is not possible for it to be analyzed in the market framework (i.e., improvements in health cannot be purchased directly)

Health as a Commodity

Health is Demanded & Produced by Individuals

Health is demanded because it affects the total time available for the production of income and wealth and because it is a source of utility itself

Investment Model of Health

Health is Demanded & Produced by Individuals

Health produced by individuals, using a variety of means such as diet, lifestyle choices, and medical care◦ Health production efficiency depends on an

individual’s knowledge and education◦ Medical care is but one input to the production

of health◦ Each individual begins life with a “stock” or

“capital” of health

Investment Model of Health

References:Dewar, D. (2010). Essentials of health economics. Sudbury, MA: Jones & Bartlett Learning Co. Santerre, R. & Neun, S. (2009). Health economics: Theory,

insights, and industry studies. (5th ed.), Mason, OH.: Cengage Learning.

Parts of the slide presentation was adapted from:Jones & Bartlett Publishers (2010)Cengage Learning (2010)