NUR 751 Healthcare Economics for the DNP Tony Umadhay, PhD., CRNA Barry University
NUR 751Healthcare Economics
for the DNPTony Umadhay, PhD., CRNA
Barry University
Health◦ “ a complete state of physical, mental and social
well-being, and not merely the absence of illness or disease”
Economics◦ is the social science that analyzes the production,
distribution, and consumption of goods and services.
◦ offers a framework to study the implications of individual decision making and help define the alternative mechanisms available to improve resource allocation
◦ Scarcity & Uncertainty
What is Health Economics?
studies the supply and demand of health care resources and the impact of health care resources on a population.
determination and allocation of health care resources◦ Medical Supplies◦ Personnel◦ Capital Inputs
Health Economics
are limited or scarce at a given point in time wants are limitless trade-offs are inevitable
◦ each society must make a number of fundamental but crucial choices
Each society must make important decisions regarding the consumption, production, and distribution of healthcare goods and services
Healthcare Resources
1. What mix of nonmedical and medical goods and services should be produced in the macroeconomy?
2. What mix of medical goods and services should be produced in the health economy?
Four Basic Questions
3. What specific health care resources should be used to produce the chosen medical goods and services?
4. Who should receive the medical goods and services that are produced?
Four Basic Questions
What is the best way to allocate resources to different consumption uses?
1. What mix of nonmedical and medical goods and services should be produced in the macroeconomy?
2. What mix of medical goods and services should be produced in the health economy?
Allocative Efficiency
How can society get the maximum output from its limited resources?
3. What specific health care resources should be used to produce the chosen medical goods and services?
Production Efficiency
Is the distribution of services equitable or fair to everyone involved?
4. Who should receive the medical goods and services that are produced?
Distribution Justice
Scarcity of economic resources◦ A society generally wishes to produce the best
combination of goods and services◦ By employing least-cost methods of production
Trade-offs are inevitable◦ Some amount of one good or service must be
given up if the production and consumption of another good or service increases
Implications of the Four Questions
Choices may involve sensitive trade-offs◦ The young vs. the old◦ Prevention vs. treatment◦ Men (prostate cancer) vs. women (breast cancer)
Achieving equity◦ Desirable goal
Redistribution of income – Taxation◦ Creates a disincentive for efficiency
Trade-off between equity and efficiency A nation’s healthcare system normally reflects
the way society has chosen to balance efficiency & equity concerns
Implications of Four Questions
Production and consumption of healthcare goods and services
Distribution of these goods & services to consumers
Barometers of health economy◦ Costs◦ Access◦ Quality
Health Economy
Structural quality◦ Physical and human resources of the medical care
provider Facilities (level of amenities), medical equipment
(type and age), personnel (training and experience), and administration (organization structure)
Quality of Healthcare
Process quality ◦ Specific actions health care providers take on
behalf of patients in delivering and following through with care Access (waiting time), data collection (background
history and testing), communication with the patient, and diagnosis and treatment (type and appropriateness)
Quality of Healthcare
Outcome quality◦ Impact of care on the patient’s health and welfare
as measured by patient satisfaction, work time lost to disability, or post-care mortality rate
Quality of Healthcare
Health – a durable good, or type of capital, that provides services
The flow of services produced from the stock of health “capital” is consumed continuously over an individual’s lifetime
Initial stock of health◦ Depreciates with age
Rate of depreciation Varies from individual to individual Age, physical makeup, lifestyle, environmental factors,
amount of medical care consumed Some are uncontrollable
Health: Economic Perspective
◦ May be augmented by investments in medical services Medical services
May compensate for many deficiencies
Health depends on◦ Quantity of life
Number of life-years remaining◦ Quality of life
Relative concept Death
◦ An individual’s stock of health falls below a critical minimum level
Health: Economic Perspective
Durable good - generates a flow of services Yield utility (satisfaction) Desired for consumption
◦ Utility from an overall improvement in quality of life
Desired for investment purposes◦ Positive state of health
Allocate less time to sickness More healthy days available in the future to work and
enhance your income or to pursue other activities
Why Good Health?
High value on future events◦ Preference for the future◦ Pursue a healthy lifestyle◦ Increase the likelihood of enjoying more healthy
days than a person Maximize utility
◦ Consume: combination of goods & services◦ Includes services produced from the stock of
health
Why Good Health?
“Good” health can be regarded as a fundamental commodity: one of the true objects of people’s wants and for which more tangible goods and services—such as health care—are simply a means to achieve it.
Formulating the basis for the demand for health provides the basis for the demand for health care.
Health as a Form of Human Capital
A key difference is that because health is not tradable, it is not possible for it to be analyzed in the market framework (i.e., improvements in health cannot be purchased directly)
Health as a Commodity
Health is Demanded & Produced by Individuals
Health is demanded because it affects the total time available for the production of income and wealth and because it is a source of utility itself
Investment Model of Health
Health is Demanded & Produced by Individuals
Health produced by individuals, using a variety of means such as diet, lifestyle choices, and medical care◦ Health production efficiency depends on an
individual’s knowledge and education◦ Medical care is but one input to the production
of health◦ Each individual begins life with a “stock” or
“capital” of health
Investment Model of Health
References:Dewar, D. (2010). Essentials of health economics. Sudbury, MA: Jones & Bartlett Learning Co. Santerre, R. & Neun, S. (2009). Health economics: Theory,
insights, and industry studies. (5th ed.), Mason, OH.: Cengage Learning.
Parts of the slide presentation was adapted from:Jones & Bartlett Publishers (2010)Cengage Learning (2010)