F.4 Health economic concepts

Question 1

What does ‘Determination of the economic impact of digital health’ include?

Answer 1

It includes:
* Economic appraisal of a proposed digital health initiative
* Economic appraisal of a particular digital technology
* Economic appraisal of alternative proposed projects
* Economic analysis of an undertaken digital health project
* Socio-economic analysis of the above

Question 2

What is economics primarily concerned with?

Answer 2

Economics studies how individuals, businesses, governments, nations, and other entities allocate finite resources, focusing on the actions of humans in seeking to optimize net benefits.

Question 3

What is the standard assumption about human behavior in economics?

Answer 3

The standard assumption is that humans behave ‘rationally’ in their own best interest.

Question 4

Who blended economics and psychology to develop the sub-domain of behavioral economics?

Answer 4

Daniel Kahneman and Amos Tversky

Question 5

What did Kahneman receive in 2002 for his work?

Answer 5

He was awarded the Nobel Prize in Economics.

Question 6

What is market failure?

Answer 6

Market failure occurs when markets do not function perfectly, often leading to inefficiencies.

Question 7

How is economic analysis different from financial analysis?

Answer 7

Economic analysis concerns more than just money; it includes concepts like ‘economic cost’ and ‘economic value.’

Question 8

What are two primary methods for determining economic impacts?

Answer 8

The methods are:
* Decision criteria (NPV, IRR, Payback Period)
* Cost-benefit and related analyses

Question 9

What does Net Present Value (NPV) represent?

Answer 9

NPV is the present value of benefits minus the present value of costs.

Question 10

What is the importance of the discount rate in NPV analysis?

Answer 10

The discount rate reflects the opportunity cost of invested resources and is crucial for accurate NPV calculations.

Question 11

What is the formula for calculating NPV?

Answer 11

NPV = PVB - PVC, where PVB is the present value of benefits and PVC is the present value of costs.

Question 12

In the context of NPV, what does sensitivity analysis involve?

Answer 12

Sensitivity analysis involves using a variety of discount rates to model impacts on NPV.

Question 13

What is the Internal Rate of Return (IRR)?

Answer 13

IRR is the discount rate that makes the NPV equal to zero.

Question 14

What does a project with an IRR exceeding the cost of capital indicate?

Answer 14

The project could be accepted.

Question 15

What is the payback period?

Answer 15

The payback period is the length of time required to recover the cost of an investment.

Question 16

Why is the payback period considered a gross measure?

Answer 16

It fails to account for the time value of money and ignores costs and benefits occurring after the payback period.

Question 17

What is cost-benefit analysis?

Answer 17

Cost-benefit analysis is a methodology for expressing costs and benefits in monetary terms at the organizational level.

Question 18

What is the ‘quadruple aim’ in healthcare?

Answer 18

The quadruple aim includes:
* Improved patient experiences
* Better health outcomes
* Lower costs
* Improved provider experiences

Question 19

What should be compared in a cost-benefit analysis?

Answer 19

All options should be compared to the ‘base case’ or ‘do nothing’ option.

Question 20

What factors should be included in the cost analysis of a project?

Answer 20

Costs may include:
* Capital costs
* Recurrent costs
* Ancillary costs

Question 21

What are common benefit categories in cost-benefit analysis?

Answer 21

Common benefit categories include:
* Savings to stakeholders
* Benefits from better health
* Benefits from a more attractive workplace

Question 22

What is the ‘quadruple aim’ in healthcare?

Answer 22

The ‘quadruple aim’ includes:
* Improved patient experiences
* Better health outcomes
* Lower costs
* Improved provider experiences

The quadruple aim serves as a framework for healthcare organizations to achieve multiple objectives simultaneously.

Question 23

What happens to the net present value (NPV) as the discount rate increases?

Answer 23

The NPV reduces as the discount rate increases

Higher discount rates reflect higher borrowing costs or greater project risks, affecting the evaluation of project viability.

Question 24

What is the human capital approach in cost-benefit analysis?

Answer 24

It equates the value of life with the productivity of the individual, measured by a discounted stream of higher future earnings

This approach assigns a monetary value to human life based on economic productivity.

Question 25

What is the required compensation approach in cost-benefit analysis?

Answer 25

It imputes a value of life from the wage premium workers require for jobs with higher-than-normal death probabilities ## Footnote This method assesses the value of life based on the additional compensation workers demand for risky jobs.

Question 26

What are intangibles in the context of digital health projects?

Answer 26

Intangibles include cultural factors and elements that are hard to quantify, such as trust levels ## Footnote These factors can significantly influence the outcomes of health initiatives but are often qualitative.

Question 27

List some limitations of cost-benefit analysis.

Answer 27

* The analysis is only as good as the assumptions and valuations that support it * Not all costs and benefits are easily monetised * May ignore distributional effects ## Footnote These limitations can affect the reliability and applicability of cost-benefit analysis in real-world scenarios.

Question 28

How does cost-effectiveness analysis differ from cost-benefit analysis?

Answer 28

Cost-effectiveness analysis monetizes costs but not all benefits, which may be expressed in units like QALYs ## Footnote This analysis helps prioritize options based on cost per unit of effectiveness.

Question 29

What is the dual-system theory proposed by Kahneman?

Answer 29

It describes two systems of thinking: * System 1: Intuitive and instinctive * System 2: Reflective and analytical ## Footnote The theory explains why decisions may not always be rational, depending on which system is in control.

Question 30

What is market failure?

Answer 30

Market failure is when the market does not deliver an efficient outcome due to misaligned private incentives and broader societal interests ## Footnote This concept highlights the limitations of markets in achieving optimal outcomes.

Question 31

What are public goods?

Answer 31

Public goods are 'non-rivalrous' and 'non-excludable', meaning one person's consumption does not prevent others from consuming them ## Footnote Clean air is a classic example of a public good.

Question 32

What are externalities?

Answer 32

Externalities are benefits or costs imposed on unrelated third parties due to the consumption of goods and services ## Footnote They can be positive (e.g., vaccination) or negative (e.g., pollution).

Question 33

Define network externalities.

Answer 33

Network externalities occur when the value of a good or service increases or decreases as the number of users rises ## Footnote Positive network externalities increase value with more users, while negative ones decrease value.

Question 34

What are positive network externalities?

Answer 34

Positive network externalities occur when the value of a good increases as more people use it ## Footnote A telephone network is an example; its value grows as more subscribers join.

Question 35

What are negative network externalities?

Answer 35

Negative network externalities occur when the value of a good decreases as more people use it ## Footnote An example is low bandwidth Internet, where increased users can degrade service quality.