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Slide 6.1 Chapter 6 Health Economics Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide6.2 • Public spending on healthcare in the UK (i.e. on the NHS) has increased from 4.5% of GDP in the late 1980s to around 8.5% of GDP in 2010/11 • Total spending on healthcare services in the UK (public and private) was around 10.5% of GDP in 2010/11 , close to the EU average of 10.6% but well below the US figure of 13.6% of GDP Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.3 • Varies widely even between the advanced industrialised economies of the OECD; e.g. Japan 82.6 years, Hungary 73.3 years • Varies widely by gender; e.g. males in Japan 79.2 years, females 86.0 years; males in Hungary 69.2 years, females 77.3 years • Is correlated with total expenditure on healthcare services, but also with other factors, e.g. the coefficient of determination (R2) is only around 0.55 as between national life expectancy and national healthcare expenditure Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.4 • Relief of poverty and redistribution of income • Evening out of income over a person's life • Insurance against life's risks • Redistribution towards needy sectors of the population Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.5 • • • • • High income elasticity of demand An ageing population Increased deprivation/economic recession Advances in medical technology Higher expectations Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Price Slide 6.6 S1 S2 S3 D2 D1 P2 P1 0 Q1 Q3 Q2 Treatment per year Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.7 • Providing health services ‘free at the point of use’ can lead to excess demand and queuing • In diagram, with demand D1 and supply S1, at zero price there is excess demand Q2 - Q1 • In a free market, price rises to P1 to bring about an equilibrium, but not possible if provision of health care is free Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.8 • If Q2 treatments are to be provided at zero price, then supply of healthcare must increase to S2. This requires more resources • If demand for healthcare increases to D2 , then supply of healthcare must increase still more to S3, if it is to be provided free at the point of use Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.9 • Asymmetry of information • High transaction costs • Monopoly provision Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.10 • • • • Cost Minimization Analysis Cost Utility Analysis Evidence-based Medicine Quality Adjusted Life Years (QALYs) Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.11 • Choose the cheapest. The choice is between in-patient treatment and out-patient treatment (day-surgery). • out-patient treatment reduces the hotel services associated with keeping a patient in hospital overnight. • in-patient treatment reduces the risk of infection. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.12 • This generic term is applied to situations where the choice is between two competing procedures but the outcomes are not the same and neither are the costs. • For example, urinary catheter is a narrow tube placed in the body to drain and collect urine from the bladder. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.13 • If there are silver coated catheters cost more than non-coated equivalents – say 10 L.E. each rather than 5 L.E. is it worthwhile to use the more expensive catheter rather than the cheaper alternative? • To answer this question, we should compare the additional cost with the additional benefit. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.14 • The benefit of the use of the silver coated catheter is the (Urinary Tract Infection) UTIs prevented as the incidence of UTI decreases from 22/60 to 6/60. thus 16/60 UTIs are prevented. • The additional cost to the hospital resulting from these had they not been prevented can be thought of as the cost of keeping these patients in hospital for additional days while the infection is treated and the cost of drugs required to do so. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.15 • The economic evaluation can only be as good as the clinical evidence on which it is based. • It is two –stage process. • The first stage is clinical evidence of the improved efficacy of the new technique ( silver coated catheter) • The second stage is the evaluation of the change in costs and of benefits that result from the adoption of the new technique. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.16 • The term evidence-based medicine related to efforts to use the results of this research in a more systematic way. • There is Randomized Controlled Trial (RCT) which acts as the gold standard research. • It should be blind. • Use statistical and meta analysis. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.17 • This method tries to measure the quality of additional life years gained as a result of the intervention. • The effect of an intervention ( a new clinical procedure) is measured not just on one dimension but on two. • The first dimension is the additional life years gained. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.18 • This is multiplied by the second dimension, the quality of life of the patient in those remaining years. • This produces a measure of QALYs. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Quality of the life index Slide 6.19 Line B (treatment) 0.9 0.5 0 Line A (no treatment) 1 2 3 Years after diagnosis Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011 Slide 6.20 • The additional quality adjusted life years gained as a result of the treatment: • (3*0.9)-(1*0.5)=2.2 QALYs. • If the treatment costs, say L.E. 60,000 then the cost per QALY would be 60,000/2.2=L.E. 27,272. • This figure can be compared with the cost per QALY associated with other forms of treatment. Griffiths and Wall: Economics for Business and Management 3rd edition © Pearson Education Limited 2011