Week 3 Flashcards
What is economics
Economics and the economy are topics for debate and research
-economists have particular expertise, enabling them to facilitate understanding of and discussion on the topic to conduct research and top advise decision makers
Economics is also a discipline:
-a way of approaching problems
-a characteristic mode of thinking
What is economics about
Concept or problem of scarcity
Resources are limited:
-finite resources
But potential uses of those resources are unbounded
-infinite wants
As individuals and society we face difficult decisions in terms of how we use limited resources
Economics is the study of how decisions are made in the context of scarcity
Economic agents
A central concern in economics is the behaviour of economic agents
Economists make assumptions about what will motivate economic agents and how they’re expected to make decisions
But the central theme running through economics is that decisions will be made in the context of scarcity
economic goods
Any good or service that is scarce relative to our wants for it
-healthcare is an economic good
-not available in endless supply resources are finite but wants for healthcare are unbounded
Opportunity cost
Opportunity cost is the value of the consequences forgone by choosing to deploy resources in one way rather than in their best alternative use
- given a fixed budget for health care increasing production in one speciality will require diverting resources away from another - micro/system level
Positive economics
Is predictive or descriptive
Eg how much does the uk spend on healthcare in comparison to other European countries
Normative economics
Values, judgement and evaluation
Eg the uk government should increase spending on healthcare
Macroeconomics vs microeconomics
Macroeconomics: the economic agent is typically the government or another agent acting on behalf of the government, the objective is typically assumed to be achieving stable economic growth
Microeconomics: the economic agents here are typically consumers and firms
Typically assumed that consumers will seek to maximise their utility subject to time and budget constraints. Various definitions of utility: happiness, satisfaction, desire fulfilment
Typically assumed that firms will seek to maximise profit subject to constraints relating to the inputs of production (land, labour and capital)
Health care funding: how do we collect (and redistribute) the money used to pay for healthcare
Taxation
Private health insurance
Social health insurance
Out of pocket (direct) payments
Mix of all above
Health care budget England
HM treasury: designing the tax system and allocating budgets to other govt. depts
Department of health and social care: policy and oversight of multiple arms length organisation
The opportunity cost of increasing spending on health at this (macro) level is either;
-lower taxes
-increased spending by other government departments
Health care and the free market
Microeconomics tends to assume that there are transactions in a free market:
-consumers buy goods in order to make themselves happy (maximise utility)
-firms seek to make profit selling goods
This can be the case in healthcare Uk
But there are characteristics or both health and healthcare that mean that health care is often considered to be a special case necessitating some form of government intervention (regulation) to correct/prevent market failure
Health care can still be provided by private profit seeking firms even where there is government intervention/regulation and sometimes even when its funded through taxation
Furthermore goods and services that cannot be classified as health care may have an impact on health and the demand for health care
Production in the short run
But in microeconomics the short run is a period of time in which at least one factor of production is fixed
Relating this to health care:
Capital: hospital infrastructure, GP surgeries, MRI scanners, ED beds, ambulances, operating theatres. Not much scope to increase capital in short term
Labour: variable to some extent in the short run:
-may be possible to recruit more support staff
-can bring in health and allied health care professionals from other countries or from private sector
-but long lead time to train health and allied health professionals so labour only fully variable in the longer term
Marginal analysis
Marginal private cost: the change in total cost for the firm/individual associated with producing/consuming one additional unit of a good
Marginal social cost: the change in total cost to society associated with the production/consumption of one additional unit
Marginal private benefit: the change in total benefit (for firm/individual) associated with the production/consumption of one additional unit of a good
Marginal social benefit: the change in total benefit (to society) associated with the production/consumption of one additional unit of a good
Intuition
We wouldn’t expect an individual to continue purchasing more of a good if the cost of an additional unit (marginal cost) exceeds the benefit they’ll get from consuming an additional unit (marginal benefit)
If there’s fixed costs or if there’s economies of scale then marginal cost will fall at first but then begin to increase
Priority setting/ rationing
Most rationing is by price
Where health care is free at the point of use there needs to be some other form of rationing or priority setting
Theres a common assumption in the UK that the purpose of health care system is to maximise population health
So we should prioritise treatments which are most cost effective (gives greatest amount of benefit/outcome for our investment)
No health care system in the world has ever achieved levels of spending sufficient to meet all of the wants of all its clients
Efficiency vs equity
Efficiency: important in both positive and normative economics. The allocation of scarce resources that maximise the achievement of aims -morris
Equity: harder to define, relates more to normative economics, synonymous with fairness and social justice
Potential for conflict: the fairest/most equitable outcome may not be most efficient
Efficiency
Technical efficiency:
-producing output in the best way possible without wasting scarce resources meeting a given objective at least cost
Allocative efficiency:
-producing the pattern of output that best satisfies the pattern of consumers wants/needs
Health economics in the UK
Much of the focus of health economics activity in the UK relates to economic evaluation
Assumes a fixed budget
And some societal objective (typically maximising health but not always)
Comparative in nature (weighs up costs and outcomes)
Seeks to find the most efficient use of resources given the stated objective
Economic evaluation: perspective
In economic evaluation we need to identify relevant costs and outcomes
Depends on the perspective of our analysis:
-health service
-public sector
-patient
-society
Depends on the type of economic evaluation:
-cost effectiveness analysis, cost utility analysis
Clinical outcomes
Advantages:
-often measured as part of clinical study
-easily understood/transparent to clinicians/ decision makers
Limitations:
-lack of comparability across different disease areas
-what does £ per unit reduction in mmhg mean
-what if we have more one outcome
Valuing health: quality adjusted life-years QALYs
Combines length and quality of life ‘utility’ into single unit
Quality of life: value health states with maximum value of 1 (perfect health) and value 0 equivalent to death
Used to weight life years
QALY= sum of(length of life) * (QoL)
Where do we get info from:
-life years: life tables and literature (long term) deaths recorded in study (short term)
-quality of life:
-value judgement
-questionnaires
-direct measurement from health state description
-published values in literature
Euro-QoL EQ-5D
Five dimensions:
-mobility
-self care
-usual activities
-pain/discomfort
-anxiety/depression
Each with 3 levels most recent versions has 5
QALY calculation
QALYs gained: QALYs with treatment- QALYs without treatment
= treatment (QoL * LE)- non treatment (QoL *LE)
Advantages of using QALYs:
-takes into account impact on quality and quantity of life
-common unit of measure that can be used across disease areas
-convenient tools for measurement
Measuring utility
QALYs used in a cost utility analysis
Economic definition of utility: level of satisfaction from goods or services
Utility in cost utility analysis- purely about maximisation of health
Broader outcomes
Patient benefits not captured by QALYs:
-control/empowerment
-reassurance
-knowledge
-satisfaction with care
-capability
Family/carer QoL
Types of cost
Direct cost:
Health and social services resource use. Eg inpatient, outpatient, tests, drugs. UK focus
Non health services resource use eg patient transportation, informal care
Indirect costs:
-wider cost implications to society eg lost production
Health and social services cost
Intervention and usual care costs, related medications
Primary care costs:
-GP and practice nurse visits other health care professionals
Secondary care costs:
-A&E attendance, outpatients, inpatients stays, surgery, tests and investigations
Social services: nursing home care, home help, home adaptations
Patient and carer incurred costs
Cost of time and transport for health care visits
Over the counter medicines and appliances
Private health care
Paid carers
Informal carer time