HEALTH ECONOMICS – AN OVER VIEW – A WAY FORWARD

                                                                                           -Dr. S. Vijay Kumar

        Health economics is the study of how scarce resources are allocated among alternative uses for the care of sickness and the promotion, maintenance, and improvement of health, including the study of how health care and health-related services, their costs and benefits, and health itself are distributed among individuals and groups in society. It can, broadly, be defined as “the application of the theories, concepts and techniques of economics to the health sector”. The Studies of “Health Economics” provide information to decision makers for efficient use of available resources for maximizing health benefits. Economic evaluation is one part of health economics, and it is a tool for comparing costs and consequences of different interventions. India is currently pursuing several strategies to improve health services for its population, including investing in government-provided services as well as purchasing services from public and private providers through various schemes. As per the World Health Organization (WHO), in countries such as India, people who pay for their health care services suffer “catastrophic costs.” While millions suffer and die in absence of access or inability to afford medical care, many others suffer because they end up paying through debts, selling assets, and so forth. Citizens’ expectations for health care are becoming high in India. The proportion of insurance in health care financing in India is very low, when compared with the developed countries. In such a situation, I want to present “Health  Economics – An Over View - A Way Forward” in the context of India and world at a glance.

      Health economics is important in determining how to improve health outcomes and lifestyle patterns through interactions between individuals, healthcare providers and clinical settings. In broad terms, health economists study the functioning of healthcare systems and health-affecting behaviors such as smoking, diabetes, and obesity. A seminal 1963 article by Kenneth Arrow is often credited with giving rise to health economics as a discipline. His theory drew conceptual distinctions between health and other goods. Factors that distinguish health economics from other areas include extensive government intervention, intractable uncertainty in several dimensions, asymmetric information, barriers to entry, externality and the presence of a third-party agent. In healthcare, the third-party agent is the patient's health insurer, who is financially responsible for the healthcare goods and services consumed by the insured patient. Health economists evaluate multiple types of financial information: costs, charges, and expenditures. Uncertainty is intrinsic to health, both in patient outcomes and financial concerns. The knowledge gap that exists between a physician and a patient creates a situation of distinct advantage for the physician, which is called asymmetric information. Externalities arise frequently when considering health and health care, notably in the context of the health impacts as with infectious disease or opioid abuse . For example, making an effort to avoid catching the common cold affects people other than the decision maker or finding sustainable, humane, and effective solutions to the opioid epidemic.

       Health economics is used to promote healthy lifestyles and positive health outcomes through the study of health care providers, hospitals and clinics, managed care, and public health promotion activities. Health economists apply the theories of production, efficiency, disparities, competition, and regulation to better inform the public and private sector on the most efficient, cost-effective, and equitable course of action. Such research can include the economic evaluation of new technologies, as well as the study of appropriate prices, anti-trust policy, optimal public and private investment and strategic behavior. The researchers of International Health are currently conducting research on a wide variety of topics, including the impact of health care, health insurance and preventative services on health lifestyles, as well as providing research and advice to governments around the globe to enable a more effective and equitable allocation of resources.

Scope of Health Economics: Health Economics falls under the topics:

·        What influences health? (other than healthcare)

·        What is health and what is its value?

·        The demand for healthcare.

·        The supply of healthcare.

·        Micro-economic evaluation at treatment level.

·        Market equilibrium.

·        Evaluation at whole system level.

·        Planning, budgeting and monitoring mechanisms.

Principles of Health Economics: From a Public Health point of view, health economics is just one of many disciplines that may be used to analyze issues of health and health care, specifically as one of the set of analytical methods labelled Health Services Research. But from an economics point of view, health economics is simply one of many topics to which economic principles and methods can be applied. As Morris, Devlin Parkin, and Spencer (2012) put it: Health economics is the application of economic theory, models, and empirical techniques to the analysis of decision-making by individuals, health care providers and governments with respect to health and health care. Practical application of health economics can be considered in two settings, which is identical to the schism with reference to epidemiology in public health and clinical medicine. Clinical health economics is the application of principles of economics in the bedside setting for maximizing the benefit of the patient.

 

Health Economics – Physician: Like the concept of prevention in practice of medicine, concept of cost also should be the concern for every practicing physician. Every doctor should be conscious about cost for ensuring efficiency of practice of medicine. The concepts of efficacy, effectiveness and efficiency are important in health economics. Achievement of stated goal for an intervention, when used in optimal conditions is called efficacy. The demonstration, that an intervention does better than harm when used in usual or actual circumstances is effectiveness. When a patient or the physician takes a decision, the important concern is whether the patient gets the best outcome for the resources incurred. This is efficiency, which is the maximum level of effectiveness obtained at the lowest cost. Generally, clinicians need to make choice to favor the most efficient option. Efficiency at the individual level can be considered as utility maximization for the consumer. Thus, health economics is important for the physician, primarily because of efficiency concerns.

 

Health Economics in the Context of India: Health economics is a growing subject in India. In the international scenario, health economics had its conceptual origin long back with the support of organizations like WHO and International Clinical Epidemiology Network.  During subsequent decades, the practical applications of this got conceived slowly in the industrialized countries. In India, health economics is a nascent discipline waiting for popularity even among the academia. Health economics needs convergence of thoughts of health professionals as well as pure economists. In many western schools of medicine pure economists work as regular faculty and are seen involved in research and teaching. Physicians are benefitted by this. World Health Organization recognizes health as a human right and the common denominators for ensuring social well-being. We know that there exists a positive correlation of economic growth with improved health indicators. However, such a trend has not been observed in India despite a high economic growth rate of 7 per cent even during world economic slowdown. For capital to be translated into positive healthcare outcomes policy goals should be clear and healthcare should be given priority in the budget; less than 1 per cent of GDP (Gross Domestic Product) is grossly inadequate. Health makes an important contribution to economic progress, as healthy populations live longer, are more productive, and save more. This has huge human and economic costs: India is losing more than six per cent of its GDP annually due to premature deaths and preventable illnesses. India encapsulates a paradox; its relatively unimpressive performance in healthcare; inability to deliver affordable health services to its over 1.3 billion citizens co-exist alongside biggest generic drugs industry which exports affordable medicine to more than 100 countries and which has earned India the sobriquet of "pharmacy of the world"; also booming healthcare industry and thriving medical tourism. A weak public sector infrastructure includes non-availability of drugs, lack of advanced laboratory facilities and equipment, a severely constrained health workforce, poorly financed public health system (less than 1.04% of the GDP), along with poor delivery mechanism for health care are the bottlenecks of Indian healthcare system which prevent health system to provide appropriate and affordable care. Therefore, India's healthcare needs radical changes. Healthcare is a growing industry in India and is valued at nearly $40 billion. The private sector accounts for more than 80% of the total healthcare spending, which is mostly out-of-pocket. Increasing population, longer life-expectancy, decline in infant mortality, more disposable income and therefore, ability to afford private healthcare facilities, and Government's emphasis on eradicating diseases have triggered this growth. Indian healthcare sector is at a crossroad, on one hand there are emerging opportunities for growth and on the other hand, there are challenges in ensuring consistently uniform facilities to all.

India’s Position in Health Care in the World & Compared with other Countries:

·        World Physicians Density: 14 per 10,000 population.

·        Number of Physicians in the world: 8,747,790. 

·        India would need about four lakh more doctors by this year i.e., 2020 to maintain the required ratio of one doctor per 1,000 people.

·        Presently the nurse physician ratio in India is 1.5:1 as against international norm of 3:1. Current annual training capacity for nurses is 1.75 lakh. Number of registered nurses in the country is 1.70 lakh out of which around 4 lakh are active.

·        In India 50% of all villagers have no access to healthcare providers.

·        In India 38% are chronically starved

·        In India 10% of all babies die before their first birthday.

·        In India 50% of all babies are likely to be permanently stunted due to lack of proper nutrition.

·        In India 33% people have no access to toilets, while 50% defecate in the open.

·        India spends 4.1 of GDP for health care while, US spend 17.9% of its gross domestic product (GDP), or $8,362 per person.

·        Cuba has some of the highest government health spending in the world – 91.5% of all health spending. It has 67.23 doctors per 10,000 population, the highest of any major country

·        UK on nurses – it has 101 per 10,000 people, only behind countries like Norway and Germany.  

·        Qatar has the lowest health spending in the world, 1.8% of GDP, followed by Burma (Myanmar) and Pakistan at 2.2%.

·        The WHO says Myanmar (Burma) government spends only $4 per person on healthcare. Indian government spends (% of GDP) are lower than that of Nigeria.

·        The reviews says that India's health care spending is comparable to other countries like Sri Lanka, China, and Thailand. The country's public spending on health as a proportion of GDP is lowest in the world. One of the consequences of this low public spending is the remarkably high out of pocket spending for health. Ninety percentage of world's population is estimated to suffer from catastrophic health spending which is defined as spending more than forty percentage of the household income directly on health care, after basic needs have been met.

Economic Evaluation in Health Care: Economic evaluation is the artillery in the armamentarium of clinical health economist. A physician who treats an individual patient by opting for a cost-effective intervention is making the trade-off, beneficial for the patient. This cost effective decision making is the case of economics in clinical medicine. Most of the economic evaluations are undertaken in the bedside setting and helps physician to arrive at the most acceptable incremental cost effectiveness ratio. Incremental cost effectiveness ratio tells us the extra quantity of outcome attributed to the change in unit cost, taking standard treatment as comparator. The bunch of quantitative methodologies for establishing cost effectiveness and analytical tools for justifying choice by fixing uncertainty is now becoming more and more popular. This has become mandatory with drug trials in few western countries. Among these techniques cost minimization is the simplest one but is considered as a partial economic evaluation. Among the full economic analysis, cost effectiveness analysis is the most familiar technique attempted by physicians. Outcome in cost-effective analysis is expressed in natural units of measurement. Outcome measurement in cost-utility analysis is quality adjusted life years gained. This is complex and is based on principles of game theory. Cost benefit is considered as a better method because comparison with sectors other than health is possible with this technique.

Public Health Economics: This helps physicians, ‘physician–administrators’, and health policy officials in decision making concerned with broader view point of resource allocations.  This is generally at societal interest, where social marginal opportunity cost is the one considered. Marginal cost is defined as the increase in total cost resulting from raising the rate of production by one unit.  The consideration at societal interest is more of allocative than technical efficiency and equity considerations also matters. The linkages between efficiency and equity in health system can be better understood at the societal level, where efficiency is considered as Pareto-efficiency. This is defined as the point in the budget line at which nobody can be made better off without making others worse off. This welfare economic principle of Pareto-efficiency is the theoretical foundation of economic evaluation. Health of individual is the primary concern of any organized civil society. Access to health care is considered as a fundamental right ensured through the constitution of India. The commitment to provide universal health care as a right of the citizen is being considered seriously by many governments but there are criticisms also. Practice of evidence based public health policy has incorporated cost effectiveness aspect in decision making and literature explaining methods for supporting health policy development toward this direction are available.

 

        Classical economics now moved far ahead toward neo-liberal theories which explain the current market behavior. The theories of globalization, liberalization, regulation, and structural reforms are the focus of such discussions in economics. Regulation is considered as one of the solutions for market failure and since health system is a typical example for market failure this may be an appropriate prescription to improve internal efficiency in health sector markets. Reforms allow the Government to take friendlier attitude toward external investors and hence can invite more trade. More harmonious and fruitful private public partnership is expected, and this can improve the overall performance and efficiency of public health systems resulting in improved access, quality, and cost savings.

Emerging Opportunities: India has become one of the prime destinations for Medical tourism; it is currently a $2 billion industry. The country has many super-specialty hospitals, highly qualified medical professionals, tele-medicine, and Government incentives to promote health tourism. The large population, good genetic pool and multitude of diseases make it conducive to conduct clinical trials and studies on personalized medicine. India will be the most populous country in the world by 2030, and nearly 200 million Indians will be at least 60 years of age by 2025. However, the growing elderly population is placing an enormous burden on the healthcare system. Urbanization has, also, led to stress on public infrastructure with the rise in communicable and lifestyle diseases.

Health Economics Research Areas:

·        Economic Evaluation and Health Technology Assessment.

·        Health Systems Research.

·        Simulation Modelling and Risk Prediction.

·        Health Inequality.

·        Methodological and Other Research.

·        Child Health.

·        Genomics.

·        Global Health.

 

Challenges: One of the main challenges is that health spending in India is mostly out-of-pocket; nearly 70% of hospitals and 40% of hospital beds are private. Health insurance is largely private, and the urban poor cannot afford private care. Our healthcare budget is inadequate; the total healthcare expenditure at only 4.1% of gross domestic product, is the lowest in the BRICS group. There is a disparity in provisioning of infrastructure and resources between rural and urban areas in India. India has approximately 860 beds/million population as compared to WHO's estimate of the world average, which is 3,960 beds/million population. These challenges create constraints in providing adequate healthcare in India, due to which making choices become difficult. One of the most disturbing challenges for any researcher attempting health economic analysis is the non-availability of relevant data for analysis. The prevailing culture in our country is to get satisfied with accountancy practice. Cost accounting is a totally different field which lacks the theoretical underpinnings and assumptions of economics. Accountancy deals with the practical side of planning to spend money and assessing the returns while economics deals with the rhetoric but scientific explanations or predictions on resource use. In general economists especially from the academic departments are more in the practice of using secondary data, while public health people prefer to resort to primary data collection in the form of surveys. One of the sparkling hopes about insurance industry is the insistence on documentation through information technology enablement. In some parts of India, e-health has become an equally enjoyable partnership model for both engineering as well as medical profession and the bonus is being enjoyed by health economist. India's healthcare challenges and poor health indicators are widely discussed at various public health forums; but rarely acknowledged in political discourse. For the first time, in the history of India all the main political parties have prioritized healthcare in their manifestos. Government promised radical reforms in healthcare with "National Health Assurance Mission (NHAM)". Healthcare must be made a core priority for the next decade, to enable transformation of the healthcare system, while promoting pro-health policies in other sectors.

A Way Forward: Worldwide, health technology assessments (HTAs) are an important means to assess the economic value of healthcare interventions. It is used to allocate healthcare expenditure fairly and efficiently. India does not have a central health reimbursement process, no willingness-to-pay thresholds, no consensus statement, policies, or guidelines on economic evaluations in health. Moreover, the delivery of health services is nonuniform. However, we could still use HTAs to guide public reimbursement of healthcare interventions, to inform pricing strategy for new drugs or drug classes and also to help healthcare decision makers to formulate clinical practice guidelines to ensure consistency of provision and evidence-based interventions for maximum efficiency. Most of the health economic studies conducted in India are collaborations with researchers outside the country. There is a lack of awareness about the concepts and methods for conducting pharmacoeconomic evaluations in India. There are several practitioners of health economic analyses at academic and research institutes in India, but these are isolated pockets of knowledge. We require training workshops and sharing of best practices at the national level. This will help create awareness and also a pool of skilled researchers. The input into an analysis determines the output. Therefore, data collection methodology for such analyses has to be robust. We need government-approved policy guidelines for health economic evaluations in India. Though the first-ever pharmacoeconomic guidelines have been formulated and presented to the stakeholders in the Drug Price Control Order, 2013, we still have a long way to go.

Conclusion: As health economics is becoming more and more visible, the application in health sector is more appreciated than that in any other contemporary fields. This will certainly lead to more debates and dialogs. Policy makers should facilitate capacity building of health professionals through creating more training opportunities and making infrastructure facilities readily available. In that case the physicians will be happier to collaborate with a pure economists who approaches the former for studying health sector. Such partnerships only will benefit the society through development of health economics as an august discipline.

References:

 

Mann JM, Gostin L, Gruskin S, Brennan T, Lazzarini Z, Fineberg HV. Health and human rights. Health Hum Rights 1994; 1 : 6-23.

Planning Commission of India. High level expert group report on universal health coverage for India. 2011.

World Health Organization. Country cooperation strategy at a glance India. 2013.

Marten R, McIntyre D, Travassos C, Shishkin S, Longde W, Reddy S, et al. An assessment of progress towards universal health coverage in Brazil, Russia, India, China, and South Africa (BRICS). Lancet 2014; 384 : 2164-71.

Chatterjee P. Manifestos for health: what the Indian political parties have promised. BMJ 2014; 348 : g2703.

Bharatiya Janata Party (BJP) Manifesto 2014. Available from: www.bjp.org/manifesto2014.

World Health Organization. Everybody′s business: strengthening health systems to improve health outcomes: WHO′s framework for action. Geneva: WHO; 2007.    Economic evaluation in the health field. World Health Stat Q. 1985; 38: 351-354.   Health economics in medical education. in: Renuka Devi V. Gowhar Jhan M. Health Economics Issues and Challenges. Deep & Deep Publications, Delhi2012: 54-59.   Arrow, Kenneth (1963). "Uncertainty and the Welfare Economics of Medical Care," The American Economic Review;53(5):941-973 Phelps, Charles E. (2003), Health Economics (3rd ed.), Boston: Addison Wesley, ISBN 978-0-321-06898-9 Description and 2nd ed. preview.