Health Economics for

Medical Students
Dwidjo Susilo, SE, MBA, MPH
Faculty of Medicine and Health
University of Muhammadiyah Jakarta
This material is adopted from Health Economics for
Prescribers by Richard Smith (MED) and David Wright
(CAP), the London School of Hygiene & Tropical Medicine.
Economics, Health and Health Economics
What is economics?
What isnt economics?
What is Health?
What is Health Economics?
Key Economic Concepts
Opportunity cost
Efficiency
Economics is about
Limited resources

Unlimited wants

Choosing between which
wants we can afford
given our resource
budget
Economics is about choice

Budget

Good A
Good B
Concept 1: opportunity cost


The value of forgone benefit which could be
obtained from a resource in its next-best
alternative use.
Economic Analysis in Health Care by Morris, Devlin and Parkin 2007 John Wiley & Sons Ltd
One In-Vitro Fertilisation course =
2,700
What is the opportunity cost?

1 heart bypass operation

150 vaccinations for Measles,
Mumps and Rubella


2000 school dinners
One-third of a cochlear implant

11 cataract removals


Half a junior school teaching
assistant for a year


One-thousandth of a Challenger 2
military tank
Economists view of the world...
Pessimist: bottle empty
Optimist: bottle full
Economist: bottle wasted

inefficient!


Concept 2: efficiency
Efficiency = maximising benefit for
resources used
Technical = meeting a given objective
Efficiency at least cost (resources)
Allocative = producing the pattern of
Efficiency output (supply) that
matches the pattern of
consumer want (demand)
Efficiency and the market
Quantity
Price/
Cost
A
Demand
Supply
Q
A
Equilibrium
Price P
A
Some misconceptions
Economics is
concerned with money
the same as accountancy
only practised by economists
objective
Economics and money
Economics is concerned with
costs (resource use)
benefits
choice
efficiency

Money is
store of value
means of exchange
Economics and accountancy
Economics is concerned with
costs (resource use)
benefits
choice
efficiency

Accountancy is concerned with
monitoring financial transactions
The practice of economics
Economics is concerned with
costs (resource use)
benefits
choice
efficiency

Everyone
weighs the relative benefits of each course of action and
choose the action which maximises well-being
Economics and objectivity
All decisions are based on subjective value
judgements (or judgements of subjective
value!)

Economics makes these explicit
What is health?
World Health Organisation:
Health is a state of complete physical, mental and
social well-being
Health Economics is often Health Care
Economics
Usually health in health economic
(evaluation) is health status according to some
measure
Health status example: EQ-5D
Applying economics to health (care)
Descriptive = quantification

Predictive = identify impact of change

Evaluative = relative preference over situations
Health economics map
B. What influences
Health? (other than
health care)
E. Market Analysis
A. What is Health?
What is its value?
D. Supply of
Health Care
G. Planning, budgeting,
regulation mechanisms
H. Micro-Economic Appraisal
C. Demand for
Health Care
F. Macro-Economic
Appraisal
A: Value of health
B: Demand for health (Grossman)
Why Economic Evaluation?
Scarcity choice value of benefits (opportunity cost)
efficiency
Economic evaluation = measuring value of alternative course
of action (opportunity cost again)
Opportunity cost forces identification of relevant alternatives
Assessment of value makes explicit importance of viewpoints
an alternative that seems unattractive from one point of
view may seem more attractive from another (cost to one is
benefit to another)
Valuation requires value judgements to be made explicit
Measurement enables uncertainties surrounding orders of
magnitude to be assessed
Economic evaluation is
The comparative analysis of alternative
courses of action in terms of both their costs
and consequences in order to assist policy
decisions (Drummond et al)
Economic evaluation is not choosing the
cheapest
The pursuit of efficient practice is not merely
about reducing costs. If it were the most efficient
procedure would be to do nothing as that pushes
costs to zero (Alan Maynard)
Important features of economic evaluation
The comparative analysis of alternative
courses of action in terms of both their costs
and consequences in order to assist policy
decisions (Drummond et al)

1. Costs and consequences efficiency
2. Comparison technical efficiency
3. Assist - not replace - decision making
Place of economic evaluation in the wider
evaluation cycle
needs
assessment
program
planning
program
implementation
process
evaluation
Economic
Evaluation
outcome
evaluation
evaluability
assessment
impact
evaluation
1. Can it work (efficacy)?
2. Does it work (effectiveness)?
3. Is it worth doing (efficiency)?
Characteristics
Economic evaluation has 2 characteristics
1. inputs and outputs (costs and consequences)
2. choice between at least 2 alternatives
Choice
Programme A
Comparator B
Costs
B
Costs
A
Consequences
A
Consequences
B
Types of economic evaluation
Type of Analysis Result Consequences Costs
Cost Minimisation
Cost Benefit
Cost Utility
Cost Effectiveness
Money
Single or multiple effects
not necessarily common.
Valued as utility eg.
QALY
Different magnitude of a
common measure eg.,
LYs gained, blood
pressure reduction.
Least cost alternative.
Identical in all
respects.
Money
Money
Money
Cost per unit of
consequence eg. cost
per LY gained.
Cost per unit of
consequence eg. cost
per QALY.
As for CUA but
valued in money.
Net
cost: benefit ratio.
Cost of Illness
Medical care for prevention
Medical care for treatment
Social services for rehabilitation
Productivity loss
Prevention
Treatment
During rehabilitation
From decreased workplace productivity as a
result of the disease and death

Example Cost of Illness
What does cancer cost in Indonesia?
What does heart disease cost the United
States?
What does blindness cost the world?

Thank You
dsusilo@gmail.com