Introduction to health economics

Question 1

What are the 4 key concepts in health economics?

Answer 1

• Opportunity cost
• Efficiency
• Marginal analysis
• Equity

Question 2

What are the different types of efficiency in economics?

Answer 2

Technical efficiency: meeting a given objective at least cost
- shall surgery for tonsillectomy be provided? By way of day surgery or an inpatient surgery

Allocative efficiency:
production that matches consumer demand
- Shall surgery for tonsillectomy be provided or an outpatient clinic for asthma?

Question 3

How is economic efficiency achieved?

Answer 3

When resources are allocated between activities in such a way as to maximize benefit

Question 4

What is a marginal analysis?

Answer 4

The margin is defined as “the next step”: it can be an incremental step (a little bit more) or a decremental step (a little bit less)

Marginal Analysis involves comparing:

• the benefit from that next step which is called Marginal Benefit with
• the cost of taking the next step which is called Marginal Cost

In marginal analysis, we are not interested in average cost and average benefit, the relevant cost is the marginal cost and the relevant benefit is the marginal benefit.

Question 5

What is equity?

Answer 5

Equity is concerned with the fairness or justice of the distributions of costs and benefits.

Question 6

How is the outcome of a cost-benefit analysis measured?

Answer 6

By monetary value

Question 7

How is the outcome of a cost effectiveness analysis measured?

Answer 7

By natural units (e.g. life years saved)

Question 8

How is the outcome of a cost utility analysis measured?

Answer 8

Utility values (e.g. QALYs)

Question 9

What is a cost-benefit analysis?

Answer 9

Compares benefits with costs of an intervention, where all benefits are valued in monetary terms

Address allocative efficiency
- Is a particular goal worthwhile?

How much more or less of society’s resources should be allocated to achieving a particular goal?

Are benefits less than or greater than opportunity costs?

• Most often measured via willingness to pay (WTP)
• Not favoured by NICE

Question 10

What is a cost-effectiveness analysis?

Answer 10

• Addresses technical efficiency
• Outcome measured in natural units (e.g. life years saved, cancers detected, reduction in blood pressure, heart attacks avoided)
• Interventions with different objectives cannot be compared
• The relationship between outcome measure and health is often unclear

Question 11

What is a cost-utility analysis?

Answer 11

• interventions compared in terms of cost per quality adjusted life years (QALY)
• Compares not just the quantity of life gained after an intervention but also the quality
• Addresses allocative efficiency within the health care budget

Question 12

What is utility?

Answer 12

• Utility is a measure of preference
• Utility values representing individual preferences can be assigned to health states (usually 1=healthy; 0=dead)
• Utility values can be combined with survival data to derive QALYs