HEALTH ECONOMICS

Economics
Definition:
1.Economics is the science that deals with production, distribution and consumption of
commodities. - J.B Say
2. The study of how individuals and societies choose to allocate scarce productive resources
among competing alternative uses and to distribute the products from uses among members of
the society. - World bank
3. The practical science of production and distribution of wealth.
Economics is divided into two
1. Micro economics : which deals with individual agents such as households and business
2. Macro economics : which considers the economy as a whole in that it considers aggregate
supply and demand for money, capital and commodities.
Health economics
Definition:
Health economics is a social system that studies the supply and demand of health care resources
and the effect of health services on population.
Health economics is a branch of economics concerned with issues related to scarcity in the health
markets.
I mportance of health economics :
To promote efficiency and equity in the health care sector by providing analytical
techniques to decision makers or health planners.
To provide way of thinking about health and use of health care resources.
To provide a process for recognizing the scarcity and the need to make choices in health
care sector.
To maximize the social benefits from health producing resources.



Cost containment strategies and improving the affordability of health services:
Containment means to control the health care costs.
Some of the important cost containment strategies are:
Competition : Competition renders more players in the market, thereby forcing them to
cut short the prices. But there should be regulatory systems by the government to control
the competition and to keep the prices stable.
Price control : There exist certain government restrictions on the prices that can be
charged for goods and services. There are two forms of price control;
a price ceiling- maximum price that can be charged
a price floor- a minimum price that can be charged
Managed care : Managed care includes a variety of techniques intended to reduce the cost
of providing health care benefits and improve quality of care. The techniques include

Panel or network of health care providers to provide care for
enrollees.
Integrated delivery system which includes

A set of designated doctors and health care facilities known as provider network.
Explicit standards to select providers
Formal utilization review and quality improvement programs
An emphasis on preventive care
Financial incentives to encourage enrollees to use care efficiently.

Use of generic drugs: A generic drug is any drug marketed under its chemical name
without advertising. Generic drugs are subject to regulations of Governments of
countries where they are dispensed. Need for clinical trials for drugs are reduced and cost
of advertising / promotion of drug can also be saved.

Health promotion and illness prevention : Health promotion and illness prevention
strategies can effectively reduce the cost of health care. More importance to preventive
care is being provided. Control programs for diseases, immunizations, MCH activities,
safe water supply , school health programs, various social security measures etc can
effectively control the disease burden in the community and there by cut short the costs.

Vertical integration of health services : Integrated care is aprocess of bringing together
inputs,delivery,management and organization of services related to diagnosis, treatment,
rehabilitation and health promotion. Vertical integration refers to linking different levels
of care Primary, Secondary and Teritiary care.
Combating health care fraud and abuse : Measures to identify and prosecute unlawful
billings by healthcare providers and insurers. Abuse include negligent care or medically
unnecessary practices that can increase the cost of health care.
Health insurance: Insurance against the risk of incurring medical expenses among
individuals. By estimating the overall risk of health care and health system expenses ; a
monthly ,yearly / periodic premium has to be deposited to get the benefits.


DEMAND, SUPPLY AND COST OF HEALTH CARE
Demand
Demand means the desire to buy or consume something. In economics demand refers not only to
desire but also ability and willingness to buy goods or services.
Definition:
The ability and willingness of a buyer to pay a price for a specific quantity of goods or services.
Types of demand :
Negative or No demand : People are un aware or have insufficient information or
misunderstanding regarding a product or service. eg: utilization of JSSK services is low
due to insufficient information about the program.
Seasonal demand : Some services donot have an all the year round demand;they might be
required only at a certain period of time. eg; fever clinics during monsoon
Latent demand : In the market there exists a gap between desirables and availabilities; ie
what actually people desire to have from health sector and what they actually get. eg;
facilities in government and private hospital.
Factors affecting demand :
Price of the goods
Nature of goods
Price of related goods
Income
Population
External factors like natural calamities, war etc.




Supply
The term supply refers to 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 sale at
particular times. Supply is always referred to in relation price and time. Supply expands with ris
in price and contracts with fall in price.
Definition :
The amount of a product that producers and firms are willing to sell at a given price when all
other factors are held constant.
Factors affecting supply :
The supply of a 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 the 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 a change in cost of production, we can also expect variation in supply.
2. The level of technology: The supply of a product depends upon the technology used in
production. Advancement in science and technology influences the production process in
a firm.
3. Government policies : Government policies in respect to particular product or service
also determine the supply.
4. Other factors : Other factors like weather conditions, floods and droughts, epidemics,
wars also cause fluctuation in the supply of goods.
Cost of health care :
Cost is the price paid or required for acquiring, producing or maintaining something. This
includes money, time or energy expenditure.