CHAIR PERSON: Dr. A.S.

WANTAMUTTE
PRESENTER: Dr. PRAKASH CHAVAN
 CONTENTS
 Introduction
 Definition
 Aim
 Scope of health economics
 Why study health economics
 Economic analysis
 Common terminology in health economics
 Cost and its types
 Budget
 Allocation
 Health Financing
 Measures of benefits
INTRODUCTION
 Economics is the social science that studies the
population, distribution, and consumption of goods
and services.
 Health economics is a branch of economics concerned
with issues related to scarcity in the allocation of
health and health care.
 In broad terms, health economists study the
functioning of the health care system and the private
and social causes of health-affecting behaviors such as
smoking
DEFINITION OF HEALTH ECONOMICS

It is the discipline that determines the price and the

quality of limited financial and nonfinancial resources
devoted to the care of the sick and promotion of health.

A social system that studies the supply and demand of

health care resources and the effect of health services
on a population.
 AIM
 To quantify overtime the resources used in health
service delivery and organize, allocate and manage
them in such a way that they are used for health
purposes with maximum efficiency in preventive,
curative and rehabilitative health services, so as to
achieve maximal individual and national productivity.
•There are limited resources
• Available resources have many alternative uses
• Best utilization of available resources to meet
desire goals
• The demand for health care
WHY STUDY HEALTH ECONOMICS
 To study the pattern of allocation of budget, its
effectiveness and efficiency.
 To study health expenditure vs health status.
 To minimize wasteful expenditure.
 To make optimum use of manpower, equipment and other
materials.
 To identify the alternative use of resources.
 To identify the areas which need further exploration and
research.
 To develop the science as an integrated concept of health
and economic management.
 ECONOMIC ANALYSIS
Cost- minimization: Here only inputs are compared and
outputs are considered to be equal,which is rarely so

Cost benefit: In this type of analyses all outputs are

measured in monetary terms

Cost effectiveness: Here a clinical output such as

morbidity, mortality,reduction in blood pressure or quality
of life etc is measured as a measure of the effectiveness.

Cost utility: In particular it looks at the cost of the action

compared to the increased in utility.In health economics it
is particular with regard to life expectancy
 Common Terminology in health
economics
SCARCITY: a small and inadequate amount. It
oocures when people want more of something
than is readily avilable.

DEMAND: It means in simple terms the type,

quantity and quality of services wanted or
requested.
 Factors affecting demands-

-price
-climate changes
-change in population
-level of income
-change in savings
GDP and GNP:

• These are the conventional terms used to

understand the performance of economy.
• These indicate the sum total of 3 components in
a country.
- personal consumption
- Expenditure on goods and services
- Investment expenditure
 GDP: It is a measure of country’s overall economic
output.It consists of total income of all individuals
in the country through means of salary, profits,
interest
 GNP: GNP stands for Gross National Product,
which is the combined value of all the final goods
and services produced in a country during an
accounting year, including net factor income from
foreign countries.
 Any net gain or loss on this account is added or
substarcted from GDP to derive the gross net
product.
PER CAPITA INCOME
 This is derived by dividing GDP or GNP by total
population.
 per capita income is an important indicator of income.
 Socio economic status is an important determinants of
health and per capita income is an important
component in assessing socio-economic status.
 POVERTY LINE
 It refers to the cut off point of income below which
people are not able to purchase food sufficient to
provide to provide 2400 kcal per head per day.
 According to 6th five year plan document“ a family
having 5 members, whose annual income is less
than Rs 3500, is said to be living below poverty
line.
 This income limit was increased to Rs 6400 in the
7th plan,it was further raised to Rs 7200 as per the
8th plan.
 As per the Government of India, poverty line for the
urban areas is Rs. 296 per month and for rural areas
Rs. 276 per month, i.e. people in India who earn less
than Rs. 10 per day.
 As per GOI, this amount will buy food equivalent to
2400 calories per day, medically enough, to prevent
death.
 COST
In general cost refers to the resources which are spent
in carrying out health activities so far as the health
care sector is concerned.
Types of costs.
1) capital costs
2) Operating costs
Capital cost:
The costs are borne irrespective of the workload of any
health centre and are fixed. Costs that dont change
over a period of time and dont vary with output.
Fixed costs are also be called indirect costs as they
are not directly associated with the final product.
These may include land,buildings,equipments.
Operating costs
The cost which is used to undertake any programme
or activities is called as variable cost or operating
cost.some operating cost will change daily and
some from year to year. These include-medical
supplies,drugs
-training, power
-salaries,
- raw materials
Cost that vary directly with output so when output
increases variable costs also increases. Variable
costs can also be called direct costs as they are
directly associated with production
Other concepts releated to costs
Marginal costs:
It is defined as the extra cost incurred to produce one
more unit,or to achieve one more positive result.
Marginal cost is the change in total cost that arises
when the quantity produced change by one unit.

SOCIAL COSTS:
 UNIT COST: It is also known as average cost.It is
the total cost of an activity divided by the number
of units of output produced.
 The unit cost tells you the cost per litre,per kg per
pound etc of what you want to buy.just divide the
cost by the quantity.
Opportunity cost:
It is defined as the value of the most desirable
alternatives, which are foregone when another
course of action is taken.it can be used explain the
consequences of choosing between two
alternatives
Example: we have a choice of two effective treatments A and
B, but only enough money for one of them. If treatment A
is funded rather than treatment B, the opportunity cost of
funding A is the benefits we forgo in not choosing B, the
next best alternative use of the resources.
COST ACCOUNTING: “ a process of manipulating or
rearranging the data or information in the existing
accounts in order to obtain the cost of services rendered by
an organization”
DEFN: “ a set of procedures for determining the cost of
the product or services and various activities involved in
the manufacture and sales, for planning and measuring
performance”
Therefore the functions of the cost accountant are –
I. To determine and analyze the cost, which helps
in evaluating the operating efficiency at each
stage.
II. Accumulation and utilization of cost data and
III. Aid to management, to arrive at the cost of
production,work order, processes etc.
BENEFITS:
COST BENEFIT ANALYSIS
A technique designed to determine the feasibility of
project or plan by quantifying its costs and
benefits.
A technique used to compare the various
costs associated with an investment with the
benefits that it proposes to return. A cost benefit
analysis is done to determine how well, or how
poorly, a planned action will turn out.
-This analysis compares doing something with
doing nothing
Example: advising the highway authorities on
whether or not to invest in crash barriers along a
10 mile stretch of road to avoid road traffic
deaths and injuries.
- cost benefit analysis makes it possible to
determine, firstly, whether an individual
intervention offers an overall net welfare
gain,2ndly how the welfare gain from that
intervention compares with that from alternative
interventions
COST EFFECTIVENESS ANALYSIS –
 Is a formal planning and evaluation technique
having both economic and technical components.
 Cost effective analysis is a form of economic
analysis that compares the relative
expenditure(cost) and outcomes(effects) of two or
more courses of action.
example: these could be heart attack avoided,
deaths avoided or life-years gained i.e the number
of years by which life is extended as a result of the
intervention.
“ An economic analysis that converts effects in to
health terms and describes the cost for some
additional health gain.
cost effectiveness ratio is calculated by dividing
cost of an alternative, expressed in monetary terms
,by the effectiveness of that alternative, usually
expressed in nonmonetary terms.
 Examples of CEA:
Let us assume we wish to compare two
alternative strategies for child survival. strategy A
is a preventive approach, say immunization.
strategy B is a curative approach, say treatment of
tuberculosis. we want to use the fixed budget
approach. in this scenario, the CEA would take the
fallowing form.
Alternative health Resources Health impact CE
program, strategy or financial or effectiveness ratio
or activity costs in terms of lives
saved
A Rs 25,000 100 Lives saved Rs. 250 per life

B Rs 25,000 15 Lives saved Rs.1677 per life

COST UTILITY ANALYSIS:
It is a form of economic analysis used to guide procurement
decisions. An economic analysis that converts effects in to
personal preferences or utilities and describes how much it
costs for some additional quality gain ( Eg- cost per
additional quality adjusted life-year)
 In health economics the purpose of CUA is to estimate
the ratio between the cost of a health related intervention
and the benefit it produces in terms of the number of years
lived in full health by the beneficiaries.
 Example: The cost of treating someone with a rare cancer
may be 4,00000, if this leads to an increase in life
expectancy of 1 Year, we can say that the cost utility of this
treatment is 400000 per Year.
 Budget:
It is a plan for saving and sending.
 The amount of money or resources allocated for a
particular purpose.
 A budget is the amount of money which an
organization allocate for a particular purpose.
 Allocation:
 It refers to the distribution of resources, both in
monetary and non monetary sense, with in a
program
 Health Financing
It refers to raising of resources to pay for goods and services
related to health
 Categorisation Of The Sources Of Health Care Financing:
1) Public sources
2) private sources
3) External cooperation or aid
4) Individual or household
5) Mixed sources
 Problems in health financing:
1) Lack of funds
2) Unequal distribution of health finances
3) Rising health costs
4) Lack of coordination in health financing units
5) Wastage and inefficiency in spending the funds or
MEASURES OF BENEFITS:
 Quality Adjusted Life Years (QALY): A quality
adjusted life year is a common measure of benefit
that combines quantity and quality of life.
It is calculated by estimating the total number of
life -years gained from treatment and weighting
each year with a quality of life score ( or Utility ) to
reflect the quality of life in that year.
 Example: a patient living for 10 years but with a
quality of life of say, 0.7 on a scale of 0 to 1( with 0
as death and 1 as perfect health), would live for
seven (0.7 X 10) QALYs.
Disability Adjusted Life Years (DALY):
 DALYs are calculated by taking the sum of these
two components. In a formula:
DALY = YLL(Years of life lost) + YLD(Years
lived with disability. The disability adjusted life
year (DALY) is used to measure the state of health
of a population.
References
 Text book of Preventive and social medicine By Piyush
Gupta and O.P Ghai.
 Text book of Health economics by N.K.Anand and
Shikha Goel 2nd Edition.
 Text book of Preventive and social medicine By M C
Gupta and B K Mahajan.
THANK YOU