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The Role of Economics in Health Care Prof.

Mohammed Hamid Abdallah Economics Dept, College of Administrative Sciences, King Saud University Economics is concerned with the allocation of scarce resources among their competing uses, on the face of unlimited and insatiate human wants. Among these wants are health care services for which we cannot use exactly the same Economic Principles we use for other goods and services; because they have special characteristics that make them different than the others. That is why a special branch of economics is developed to deal with them called Health Care Economics. 1- Definition: Health Care Economics is a new branch of Economics concerned with how to apply the Economics Tools for heath care issues and explain its different aspects to make them more analyzable. It also offers measures to determine if a certain policy will increase or decrease the economic efficiency and the equitable distribution of health care services. Of course, economic analysis cannot help in all the concerns of health professionals and the general public in the area of health care services. Different problems need different training and experiences. The particular problems suitable for economic analysis are those related to scarcity of resources. In this respect, economics can explain the most preferable choices of the society when its available resources are not enough to satisfy all its needs. That is usually the case in all societies because of the strong competition between the different needs of

each society such as education, health care, security, defense, roads, .ect. 2- Economics Tools: The most used two economics tools for the analysis of health care services are: 1- The marginal analysis which deals with optimization problems. 2- Supply and demand analysis which is used for predicting the new equilibrium situations. These two economics tools are quite interrelated. Supply and demand analysis assumes that consumers and producers try to maximize a certain objective (utility in the case of consumers and profit in the case of producers) subject to a certain budget. It also determines the measures of welfare resulting from different government and private policies on the equitable distribution of wealth and the effects of the different market structures such as competitive markets and monopoly. However, in some instances the use the economics tools leads to predictions different than what is observed in reality. The reason for that may be lack of or the unrealization of one or more of the expected assumptions, such as the lack of perfect competition which is assumed by the economic theory to exist in all markets. In this case, the role of government policy is both possible and desirable to correct the market deviations and imperfections.

3- The Assumptions of Health Care: There are many assumptions concerning health care that makes it different from other industries. The following are some examples: a. Consumers of health care services lack information concerning their health problems and how they should be treated. b. Uncertainty about the medical expenditures the patients or the government may have to pay. c. Uncertainty about the results of treatment. d. The double role played by the doctor as an agent for the patient and as a supplier of the medical service, at the same time. e. The large number of non-profit medical firms which determine the prices of their services based upon their costs only. f. Barriers to entry in the medical profession and in certain tasks delivered by the different health professionals. g. The desire of the society to provide each of its individuals with the minimum level of health care. In spite of the fact that some of these assumptions are found in other industries and sectors, the existence of all of them in health care makes it a special sector and a different industry. 4. The Three Basic Questions: The health care sector is like the other economies and industries faces three basic questions related to scarcity. They are:


How much of the limited resources the society is willing to spend on health care? How to produce health care in such a way as to be delivered with minimum costs? How to distribute health services equitably among those who need them?

Some economists believe it has to be left for the market (the private sector) to answer these three basic questions because it expresses the consumers preferences, and it is a neutral approach which is not biased in its decisions to any group especially in distribution. They add that, government regulations alone cant stop mal and immoral medical practices; they only reduce competition in health care delivery and transfer the decision making from the consumers to the government officials who express their own preferences which may not always coincide with the societys preferences. Those who doubt the market approach, which leaves the decision making to the consumers, believe that if this approach is convenient for other goods and services, it is not convenient for health care services, for the following reasons: Firstly: Consumers dont know their medical needs. Secondly: Consumers spend on medical services what others think they should spend. Thirdly: Consumers do not have the necessary information that make them capable of choosing between the different providers of heath services. Fourthly: The market system may not defend the patients when the objective of health care providers is profit. That is why they prefer that the government should provide the largest portion of health care.

These arguments are still going on without finalization, yet some countries decided to leave health care services for the market system only to cope with the age of privatization and globalization, and to contain the escalating government expenditures on this sector, which are becoming difficult to predict in both their amounts and their future developments.

Summary: To sum up the forgoing discussion, health care economics benefits the health care sector in many ways, which are: 1- It provides a background by which medical care issues could be analyzed. 2- It enables the evaluation of the effects of medical legislations and regulations on the supply and demand in the four interrelated health care markets, which are: a. The final market for health care. b. The market for health care institutions. c. The market for health care manpower. d. The market for health care education with all its levels and types. 3- Economics can be used in the traditional aspects such as predictions and planning which are required in any other sector or industry. 4- Economics provide measures to evaluate health policies in order to achieve efficiency and equity in health care. 5- Economics determine the costs and benefits of the different health care choices.