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.
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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 personnels.

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 of activity 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 or information in the existing accounts in order to obtain the cost of services rendered by an organization. Cost analysis
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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 household in a country during one year. 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 1. 2. 3. 4. 5. 6. 7. The uses of NI estimation are given below; It helps to know the production performance and economic progress of the country. It indicates economic welfare and standard of living. It makes us to understand whether a company is growing, stagnant or declining. It depicts the contribution made by different sector of the economy. It helps to know the purchasing power of money. it narrates the relative role played by the public sector and private sector. It helps to know the purchasing power of money.

8. It helps to formulate various economic policies for economic and social development. 9. Useful study to know the position of an economy at international level.

DEMAND Demand means desire to buy or consume something. In economics demand refers not only to desire but also ability and willingness to buy goods or services. It means a consumer should have desires, ability to pay for a product or service and willingness to pay for it. However the demand for health and medical care in strict economic sense is a function of: 1. Consumer income 2. The price of medical care relative to the prices of goods 3. Tastes and preferences of consumers including their perceptions about health and health care. SUPPLY The term supply is nothing but anything but anything which is offered for sale. In economics, supply of a product during a given period of time means the quantities of goods which are offered for a sale at particular prices. Supply is always referred to in relation to price and time. A statement of supply without reference to price and time conveys no economic sense. DETERMINANTS OF SUPPLY The supply of commodity depends not only on the price of the commodity but also on many other factors. They are as follows: 1. Cost of production: Cost means expenses incurred by the producer on various factors of production like rent, wages and capital. The cost

of production determines the supply. If there is change in cost of production we can also expect variation in the supply. 2. The level of technology: The supply of a product depends upon the technology used in the production. Advancement in science and technology influences the production process of the firm. 3. Non government factors: The economic factors like weather conditions, floods and droughts, epidemics, wars also cause fluctuations in the supply of goods. 4. Government policies: Government policy in respect of a particular product or a service also determines the quantity of supply.

MICRO ECONOMIC ANALYSIS IN HEALTH

There are four main types of economic analysis in health: COST MINIMIZATION: Here only inputs are compared and outputs are considered to be equal, which is rarely so. COST BENEFIT: In this type of analysis 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 effectiveness. Cost effective analysis has generally superseded cost benefit analysis because of the problems of allocating monetary values to all outputs. COST UTILITY: This measures allocates a quality of life value and combines quantity and quality of life to derive the quality adjusted life years. Although the cost utility method has the advantage that different interventions can be compared across a broad range of choices in resources allocation, a number of methodological problems remain.

HEALTH CARE ECONOMIC TERMS

The following are health care economic terms with which the nurse should become familiar. Capitation: Capitation is a dollar amount established to cover the cost of health care services delivered to a person for a specific length of time, usually one year. The term usually refers to a negotiated per capita rate to be paid periodically by a managed
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care organization to a health care provider. The provider is then responsible for delivering or arranging for the delivery of all health services required by the covered person under the conditions of the provider contract. Co payment: it is a cost sharing arrangement whereby the person who is insured pays a specified charge. The person is usually responsible for payment at the time that the service is rendered. Diagnosis related groups: diagnosis related groups is a prospective cost reimbursement classification system for inpatient service based on diagnosis age, sex and presence of complications. It is used as a means of both identifying costs for providing services associated with given diagnosis and reimbursing hospitals and select other providers for services rendered. The amount of payment is predetermined. Fee for service: fee for service is a payment system where by nurses, physicians, hospitals and other providers are paid a specific amount for each service performed as it is rendered and identified by a claim for payment. Managed care: it is an external monitoring and co managing of an ongoing provider client relationship to ensure that the provider delivers only appropriate care. Managed care as a means to control cost while also maintaining quality and access to appropriate care. It is also a mechanism for introducing competition into the health care market and there by for making the health care market respond in the expected fashion to the supply and demand cycle. Managed care organization: A managed care organization is an entity that integrates financing and management and the delivery of health care services to an enrolled population. Managed care organizations provide, offer or arranged for coverage of designated health services needed by members for a fixed prepaid amount. Managed competition: Managed competition as a purchasing strategy to obtain maximum value for employers and consumers.

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Out of pocket expenses: These expenses are not covered by a health care plan and thus borne by the individual. Preferred provider organization: A PPO is a health care delivery system that contracts with providers of medical care to providers of medical care to provide services at discounted fees to members. Prospective cost reimbursement: It is a method of paying all health care providers in which rates are established in advance. Providers are paid these rates regardless of the costs they actually incur. Cost plus and retrospective reimbursement: It is reimbursement based on what a service costs, plus the addition of some percentage of profit. The costs of the service and the profit are predetermined and agreed upon by the provider and purchaser. Third party payer; It refers to an entity other than the provider or the consumer that is responsible for the total or partial payment of health care costs. Whether the third party pays all or a portion depends on the type of coverage. If the consumer is required to make partial payment, that payment is commonly referred to as a co pay. For elderly person the third party payer is the Medicare; for the poor it is Medicaid; and for the insured it is the insurance company. Medicare: Medicare part A or the hospital insurance program, helps pay for hospital, home health, skilled nursing facility and hospice care for the aged and disabled. Part A is financed primarily by payroll taxes paid by workers and employers. Medicare part B or the supplementary Medicare insurance program, pays for physician, out patent , hospital and other services for the aged and the disabled. Medicaid: It is a program funded by federal and state taxes and administered by the states. Medicaid plays for the health care of low income persons. Services and eligibility differ from state to state

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Health maintenance organizations (HMO): HMO are a type of insurance who contracts with and enrolls individuals and groups to provide comprehensive health care services on a prepaid basis. They emphasize on preventive health services and most of them provide inpatient and out patient services. 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 groups 4. Advanced technology 5. Rising administrative costs. 6. Clients 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

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 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: 1. 2. 3. 4. 5. 6. 7. 8. . Following are the features of health care market: 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. Supply of health care services is independent of demand i.e. it does not change according to the changes in demand. Imperfect competition: that means the competition in the market is either monopolistic or oligopoly or duopoly. Negligible selling cost: The selling costs are the expenses incurred by the producer on the promotion of the sale. Demand is more than supply: the demand for the health care services is more than its supply particularly in public sector health care market. No perfect knowledge: there is any perfect knowledge about the health care services market among the service providers and beneficiaries. Intervention of govt.: The market is controlled by the govt. Profit: is the secondary health care management.

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EVOLUTION OF HEALTH CARE DELIVERY MARKET

PHASE 1
CHARITABLE TRUST GOVT. OWNED HOSPITAL SMALL NURSING HOME SCANT TECHNOLOGY, LOW EMPHASIS ON SUPPORT SERVICES

PHASE 2
LARGE STAND ALONE HOSPITAL SETTING UP OF SUPER SPECIALITY HOSPITAL NEW PROJECT FUNDING BY FINANCIAL INSTITUTION SUPER SPECIALITY CENTRES LATE 1980S-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

PRE & EARLY 1980S

AFTER 2005 75% NURSING HOME 20% STAND ALONE HOSPITAL 5 % CORPORATE CHAIN
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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.

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Types: 1. Agricultural cooperative societies 2. Non agricultural cooperative societies Urban cooperative banks Employees cooperative banks.

TRENDS IN HEALTH CARE FINANCING

EQUITY
PRIVATE EQUITY IPO

DEBT

STRATEGIC PARTNERSHIP
MANAGEMENT CONTRACT JOINT VENTURE

HEALTH ECONOMICS DELIVERY

IN

PUBLIC

HEALTH

The availability and utilization of health services in India is rather poor with govt. sector meeting the demand of on 18% out patient, 40% in patient car. Though the spending of health care is 6% of GDP, the state expenditure is 0.9% of total spending. Moreover, the availability of health resources not used efficiently

PRINCLPLES OF HEALTH HEALTH CARE DELIVERY

CARE

IN

PUBLIC

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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 allelevated 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;
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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. 2 nd 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. 1 st 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.

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www.google. Com.

TRENDS IN HEALTH CARE FINANCING

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EQUITY
PRIVATE EQUITY IPO

DEBT

STRATEGIC PARTNERSHIP
MANAGEMENT CONTRACT JOINT VENTURE

BUDGET In the context of health budget is a systematic economic plan for a specific period of time. It incorporates politically and technically determined appropriations indicating in what way and for what purposes various health resources are to be used. ALLOCATIONS In health economics the term allocations for health care at a given point in the time or even a period of time refers to distribution of resources both in monetary and non monetary sense within a program. Role of state and central govt. in financing health care As the health comes under state list, the state govt. with the financial assistance of central govt is allowed to take required steps to provide disease free environment to its people. Both the govt. are playing an important role in by providing necessary health care services. There are: Central govt. under directive principles of state policy has instructed to start hospitals, dispensaries in all taluk and district to attend the patients. Primary health care units are encouraged in rural areas.

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 Private nursing homes and laboratories are encouraged under liberalization policy of govt. Permission is granted to open nursing and medical colleges through the country and state. State govt. have made compulsory to all the new doctors who are appointed to serve one year in rural year. Rural health education is provided through awareness programme undertaken through extension programmes at the school and college level. Safe drinking water and sanitation is being provided to all the people of the state including rural areas. Financial assistance is provided through various nationalized banks to private sectors to start pharmaceutical companies medical shops, ambulance services. The central govt has started universal health programmes. Voluntary councelling centres are opened to counsel HIV positive patients. Family welfare programme is started to provide child and maternal health services to the entire population of the country. Environment protection programs have been launched.

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