Session 5 Health economics

• What is health economics?

  • Principles of resource allocation
  • Understand why there is a role for the state in allocating healthcare resources.
• Resources are the basic inputs to production – time, abilities, capital, natural resources.
• Scarcity means that there are not enough resources to satisfy all demands and needs. It has 2 sides – the infinite nature of human wants and the finite nature of the resources available.
• Economics is the study of how individuals and societies choose to allocate scarce resources among competing alternative uses, and how to distribute the products from these resources.
• Health Economics is the study of how scarce resources are allocated among alternative uses for the care of sickness and the promotion, maintenance and improvement of health.
• The comparative analysis of alternative courses of action in terms of both their costs and their consequences - economic evaluation
• Types of Economic Evaluation?

  • Cost - minimisation
  • Cost - effectiveness
  • Cost - utility
  • Cost - benefit
• QALYs are calculated by weighting time (years of life) with a quality adjustment, called utility. A hypothetical measure of the satisfaction from or desirability of consumption of goods or services.
• How are QALYs constructed?

  • Periods of time in less than full health are weighted on an interval scale of (0-1)– 0=death; and– 1=full health
  • This is the ‘utility’ value
  • These weights are then multiplied by the duration of time spent in the health state to obtain QALYs
  • Utility (u) x time in years (t) = QALYs
• Opportunity cost : The potential benefits which are sacrificed when resources are committed to one purpose rather than another

  • So the opportunity cost of investing in a healthcare intervention is the health benefit that could have been achieved had the money been spent on the next best alternative intervention.
• Incremental cost effectiveness ratio (ICER) = (Cost 1 - Cost 2)/( Effect 1 - Effect 2)