HEALTH ECONOMICS

Many countries especially the developing ones, are concerned about the resources of health
sector. Such concerns broadly relates to: a.) the sources of finance for health services; b) the
ability to maintain at least the past funding levels; c)resources allocation pattern and d)
economic efficiency with equity of health services delivery etc.

ECONOMICS

The term Economics is taken from Greek words "Oikos" and "Nomos". "Oikios' means
household and 'nomos' means management. So, economics means household using the
limited funds available in the most economical manner possible. In other words, it means
managing the desires and aspirations of family through wise allocation of resources in order
to achieve maximum satisfaction in life.

DEFINITIONS OF ECONOMICS

It has been variously described as the study of welfare and study of wealth, study of welfare
and study of scarcity. The definitions are given below:

Study of health

Adam Smith the father of economics defined economics as a science which studies the nature
and causes of national wealth.

Study of welfare

Marshll defined economics as a study of mankind in the ordinary business of life; it examines
that part of the individual and social actions which is most closely connected with the
attainment and use of the material requisites of wellbeing.

Study of scarcity

Robbins, who propounded economics at the study of scarcity, defines it as the science which
studies human behavior as a relationship between the ends and scare means which have
alternative uses.

Growth definition of economics

According to Paul A Samuelson, Economic is the study of how men and society choose with
or without the use of money, to employ scarce productive resources which could have
alternative uses, to produce various commodities over time and distribute them for
consumption now and in future among various people and groups of society.
 INTRODUCTION TO HEALTH ECONOMICS

Health economics is a branch of economics concerned with issues related to scarcity in the
allocation of health and health care. Broadly health economists study the functioning of
health care system and private and social causes of health affecting behaviors such as
smoking, drinking alcohol etc.

Health economics is the discipline that determines the price and quantity of limited financial
and non financial resources devoted to the care of the sick and promotion of health. It covers
the medical industry as a whole and extends to such fields as economic analysis of health
programs and returns from investment in medical education, training and research.

AIM

To quantify overtime the resources used in health care services delivery and to 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 maximum individual and national productivity.

SCOPE OF HEALTH ECONOMICS

 The scope of health economics include the following:

 What influences health? (other than health care).
 What is health and what is its value?
 The demand for health care:
 The supply of health care;
 Micro economic evaluation at treatment level
 Market equilibrium; and price mechanism Evaluation at whole system level; and
 Planning, budgeting and monitoring mechanism.

FOCUS OF HEALTH ECONOMICS

The health economics mainly concentrates on how to extract maximum benefits from health
industry with least cost combination. Here the benefits are not just in terms of monetary terms
but also in terms of human welfare. Health economics explains the health infrastructure as
means of health care industry. It applies theories techniques, models and other relevant tools
to the health services both material and non material things used in health care industry.
 AREAS OF HEALTH ECONOMICS

The study of health economics includes the following areas.

1. Cost of health care

Cost refers to expenses incurred to produce or create anything which satisfies human wants.
Health economics explains the application of various cost concepts in health care industry. As
the health care industry non profitable sector, cost is taken as secondary for development of
health education and hygiene environment. It includes opportunity cost, variable cost, fixed
cost, marginal cost etc.

2. Health problems:

The study of health economics also concentrates on health as an important of economic

indicator of economic development, how health problems pose a major threat for economic
progress and national defense of a country. It also explains the various causes for health
problems and co relation between health industry and economic development.

3. Demand for health care:

Demand refers to desire accompanied by ability to pay and willingness to pay for a product or
service in a market. The demand may be elastic or inelastic. Based on the nature of elasticity
of demand in respect of price, the market supply is determined. Hence the demand analysis
comes within the scope of health economics. For e.g.

demand for medicine has inelastic demand as it is necessary product which saves life.

4. Supply analysis in health care:

Supply refers to any thing material or non material which is offered for scale at a particular
level of price and at a given period of time. Supply depends on many influencing factors like
price, cost of production, govt. policy, demand etc. the health care services like hospitals,
dispensaries etc are all included in the boundary of the study of health economics.

5. Health care service market:

Market is an economic environment where buyers and sellers of goods and services interact
for purchase and sale for mutual benefit. It explains how the market for health services work.

6. Financing for health care industry:

Finance here refers to money invested in health care services. Financing means creation and
investment of funds in creating various health care amenities. It studies various source of
finance available for health care industry. It discusses both money and capital market where
short and long term funds are produced. It makes aware about the existence of public and
private sector banks as suppliers of loans and advances to health care industry. It covers govt.
generate funds, health insurance, voluntary agencies providing services at free of cost etc.
7. Health plans and outlays

One of the primary motives of every country is to give primary importance to health service
to make citizens healthy both physically and mentally. For that each country prepares its own
plan about the possible health care programs for human wellbeing. E.g.5 yr plans.

8. Optimum utilization of resources:

The optimum allocation of resources is an important element of health economics. As every

investor or facilitator experts maximum benefit with minimum cost, the resources play a
major role in deciding the path of progress. The resources in health care economics include
all those men and materials used to promote human health.

CAUSES OF HEALTH PROBLEMS IN INDIA

Ill health has become a common factor in India which in turn put negative effect on
economical growth and development. The main causes for health related problems in India
are as follows:

 Lack of education.
 Poverty
 Poor government support.
 Environmental degradation.
 Population explosion.
 Slums and open sanitation.
 Socio religious causes.
 Ignorance and lethargic attitude of people.
 Other causes like
 Birth related problems due to marriage among close relatives.
 Scarcity of safe drinking water.
 Inadequate health education Poor infrastructure facilities.
 Scarcity of qualified personnel's.

COST OF HEALTH CARE

Cost can be classified in many ways. In general costs refers to the sources which are spent in
carrying out health activities so far as the health care sector is concerned. It is to be
understood that "unrealized" or "non realized" benefits also count towards costs. An e.g.
could be the loss of productivity due to morbidity, disability or mortality.

In general cost can be classified into two broad groups: capital cost and operating cost.

CAPITAL COST: these costs are borne irrespective of the work load of any health centre
and fixed. They may include: Building i.e health centre, hospital etc. Major items of
equipment.

In order to compute the yearly cost of such items as building refrigerator etc.
Capital costs are also termed as capital expenditure, capital goods represent capital
investment.

OPERATING COSTS: these costs are related to the level or type ofactivity in a health
institution. Some operating costs will change daily and some from year to year. The operating
costs include:

 Salaries, wages and allowance of health staff at different levels.

 Medical supplies, drugs etc.
 Transport operating costs.
 Maintenance and repair.
 Training.
 Power
 Other miscellaneous items.

Operating costs may also be seen as indirect or overhead costs related to the expenses
associated with utilities, administration and supervision.

OTHER CONCEPTS RELATED TO COSTS

1. Marginal costs:

This refers to the amount, at any given volume of outputs, by which aggregate costs are
changed if the volume of output is increased or decreased by one unit. These costs occurs
when one or more unit is added.

2. Social cost:

It is the cost of health activity to the society and not merely or solely to the agency institution
of sector carrying out the activity.

3. Unit cost:

It is also known average costs. It is the total number of units of an activity divided by the
number of units of output produced.

4. Opportunity cost:

This economic concepts is quite important and usually forgotten in costing. The economists
notion about opportunity costs implies that the cost of providing one form of health care
should always be balanced against the benefits which have to be scarified.

5. Cost accounting:

Cost accounting can be defined as a process of manipulating or rearranging the data provides
a tool of measuring success in monetary terms and thus helps to control and monitor the cost.
 Cost accounting assist health administration in controlling the costs and
monitoring the progress of various resources. Thereby it can lead to rational allocation of
scare health resources.

NATIONAL INCOME

National income refers to the money value of all the final goods and services produced in an
economy with in an accounting year. In simple words it is the aggregate income earned by all
the people from all the sources in one year time.

CONCEPTS OF NATIONAL INCOME

GROSS DOMESTIC PRODUCT

GDP is the aggregate of final goods and services produced in the domestic territory of a
country during an accounting year. It can be calculated both in factor cost and market prices.
GDP can be obtained as follows:

GDP= GNP-(X-M) where GNP is gross national product, X is exports and M is imports.

GROSS NATIONAL PRODUCT

It is the national income of a country. GNP is defined as the total market value of all final
goods and services produced in a country in a year time.

While calculating GNP the money value of only the goods and services which are finally
consumed by the people are to be taken into account. Hence the value of all intermediary
goods and inputs are to be excluded.

GNP=GDP+X-M X income earned by exports. M money spent on imports.

GNP includes:

 The total value of all consumption goods which are currently produced.
 The value of all capital goods.
 Total government expenditure on buying various goods and services.
 Net export value.

NET NATIONAL PRODUCT:

NNP is the market value of the net output of final goods and services produced by the
country during the relevant income period. NNP=GNP-Depreciation.

PERSONAL INCOME

The concept of personal income is the sum of all the incomes actually received by the
individuals and
Personal income helps us to know the potential purchasing power of people. It represents per
capita income of a nation and measures standard of living.

DISPOSABLE PERSONAL INCOME

It is a part of personal income which is available for consumption oa goods and services by
individuals.

PRACTICAL IMPORTANCE OF THE STUDY OF THE NI ESTIMATES

The uses of NI estimation are given below;

1. It helps to know the production performance and economic progress of the country.

2. It indicates economic welfare and standard of living.

3. It makes us to understand whether a company is growing, stagnantor declining. 4. It

depicts the contribution made by different sector of the economy.

5. It helps to know the purchasing power of money.

6. it narrates the relative role played by the public sector and private sector.

7. It helps to know the purchasing power of money.

FACTORS CAUSING UPWARD CLIMB OF HEALTH CARE COST

1. Cost per volume of services

2. Per capital increase in volume of services.

3. Growth in specific population group's

4. Advanced technology

5. Rising administrative costs.

6. Client's complexity.

7. Health care fraud.

8. Excess capacity.

9. Uncompensated care.

Market equilibrium

Market equilibrium includes two main forces i.e. demand and supply.

There are 5 health markets.

1. Health care financing market.

2. Physicians and nurses market.

3. Institutional service market

4. Input factors market

5. Professional education market.

STRUCTURE OR HEALTH CARE INDUSTRY

An industry is a group of firms. Industry consists of all those individual units of production
which are producing differentiable goods though they belong to same product line.

Industry can be classified as manufacturing industry and service industry. Health care is a
service industry.

Health care industry

1.Public sector

 Govt. hospital
 Govt. medical colleges
 Blood bank
 Ambulance services

2. Private sector

 Medical colleges and hospital

 Laboratories
 Pharmaceutical companies
 Ambulance services
 Nursing homes

CHARACTERISTICS OF HEALTH SERVICE MARKET:

Following are the features of health care market:

1. The health care market has the inelastic demand- means it does not change according to
changes in prices of services. The prices may fall or rise, but the demand remains same.

2. Supply of health care services is independent of demand i.e. it does not change according
to the changes in demand.

3. Imperfect competition: that means the competition in the market is either monopolistic or
oligopoly or duopoly. 4. Negligible selling cost: The selling costs are the expenses incurred

by the producer on the promotion of the sale. 5. Demand is more than supply: the demand for
the health care services is more than its supply particularly in public sector health care
market.
6. No perfect knowledge: there is any perfect knowledge about the health care services
market among the service providers and beneficiaries.

7. Intervention of govt.: The market is controlled by the govt.

8. Profit: is the secondary health care management.

EVOLUTION OF HEALTH CARE DELIVERY MARKET

PHASE 1

 CHARITABLE TRUST
 GOVT. OWNED HOSPITAL
 SMALL NURSING HOME
 SCANT TECHNOLOGY, LOW EMPHASIS ON SUPPORT SERVICES

PRE & EARLY 1980'S

PHASE 2

 LARGE STAND ALONE HOSPITAL SETTING UP OF SUPER SPECIALITY

HOSPITAL NEW PROJECT FUNDING BY FINANCIAL INSTITUTION
 SUPER SPECIALITY CENTRES

LATE 1980'S-1990

PHASE 3

 EMERGENCE OF CORPORATE CHAINS

 INCREASED USAGE OF TECHNOLOGIES AND EMPHASIS ON
OPERATIONAL EFFICIENCIES
 GROWTH OF HEALTH INSURANCE AS A DRIVER BEHIND PHENOMENAL
GROWTH
 PROFIT MOTIVE IN HEALTH CARE IS NO LONGER SCORNED LEADING TO
EVOLUTION OF INNOVATIVE BUISNESS MODELS

EARLY 2000 & BEYOND

AFTER 2005

75% NURSING HOME

20% STAND ALONE HOSPITAL

5% CORPORATE CHAIN

HEALTH FINANCING
It refers to rising of resources to pay for goods and services related to health. These resources
may be in the form of cash or kind. Financing of health care is viewed within the framework
of scarcity of resources; their sustainability and their efficiency. A broad categorization of the
sources of health care financing is as follows:

1. Public sources

2. Private sources

3. External cooperation

4. Individual or household

5. Mixed sources

Public sector:

Under this we have nationalized banks. Eg:- State bank of India, Syndicate bank.

Private bank:

Private banks are those banks which are doing the business of banking and are not
nationalized so far.

Private foreign banks

Foreign banks are those banks based in foreign countries and are operating in India also
known as foreign exchange banks. They are incorporated in foreign countries and have its
branches in India.

Corporative sector

It is one of the form of organization where persons join voluntarily on the basis of equality
and to promote economic interest of all persons. In this form people join are come together in
a systematic manner to protect themselves from exploitations from economically rich class
and to protect mutual interest.

PRINCLPLES OF HEALTH CARE IN PUBLIC HEALTH CARE DELIVERY

1. Efficiency: measures of how well resources are utilized to achieve a given effectiveness
which refers to the extent to which the underlying problem is all elevated or reduced. The
efficiency is enhanced by

 Mapping of health care services and utilization.

 Preparation of citizens charter.
 Public private partnership
 Decentralization of health services
 Local govt. control of resources
 Promotion of community based health insurance
 Imposing user fees.
2. Equity: It is needed to make a fair distribution of the various resources. To ensure the best
health outcome, a re allocation of sources with in the health sector or in related sectors. This
would overcomes a big skew in distribution of health care services between the rural and
urban areas.

3. Cost effectiveness: technique of health economic which can be used to compare the
relative value of varying clinical strategies. It may also act an evaluation tool to measure the
extent to which health care generates changes which people values, be they patients, planners,
doctors or politicians and to compare these changes with research needed to achieve them.
Therefore this serves as an aid to decision making. e.g.:- discovery of cost effectiveness of
domiciliary care in TB resulted in emergence of DOTS which was found to produce direct
tangible economic benefit by reducing the prevalence of deaths and averting hospitalization
of TB patients.

4. Cost containment: aims at reducing the cost of health services without compromising the
result by adopting containment measures such as

 Minimizing purchaser of stock.

 Prevent wastage by internal auditing and effective supervision.
 Reduction of cost of medicine; purchase of generic drugs.

A physician could plan an important role in cost containment by;

 Reducing number of investigations.

 Prescribing equally effective cheaper alternatives
 Reduce the number of drugs prescribed.
 Reduce the average length of stay in hospital.
 Avoiding overstaffing.
 Develop cheaper and innovative technology.
 Teaching and training in health economic for MBBS and other degrees in public
health..

CONCLUSION:

In a country with scare resources and over growing population with diverse health care needs,
health economics play a pivotal role in determining the delivery of equitable and cost
effective health services. Concentrated efforts from policy makers, programme managers
education experts, curriculum planners and medical faculty is needed to promote and utilize
this concepts in improving public health practices.

BIBLIOGRAPHY

1. Hitchcock JE, Schubert PE, Thomas SA. Community health nursing: caring and action.
Albany: Delmar publishers; 1999, 66-88.

2. White Lois. Foundations of nursing. 2nd edn. US: Delmar publishers; 2005, 86-88. 3.
Basavaiah H. Nursing health economics. New Delhi: Jaypee
publication; 2009. 4. Anand NK, Goel s. Health economics for nurses. 1st edn. New Delhi:
A.I.T.B.S. publication; 2008. 26-160.

5. Dr Kumar R. Challenges of health care in India: Economics and administration. Rajour: D

and D publication; 2008, 23-81.

6. Basavanthappa BT. Nursing administration. 2nd edn. New Delhi: Jaypee publication;
2009, 616-630.

JOURNAL

Financing of health care; health for the millions. Vol 34. No 5& 6.
 TRIPURA COLLEGE OF
NURSING

ASSIGNMENT
ON
HEALTH ECONOMICS

SUBMITTED BY
SUBMITTED TO
Sanjoy kr. Rudra Paul
Mrs. Immaculate Cinderella
M.sc Nursing 3rd sem.
Associate Professor of Tripura
college of Nursing Rollno :-08,TCN