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Academic year: 2022



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Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,

Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest

Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest



Authors: Éva Orosz, Zoltán Kaló and Balázs Nagy Supervised by Éva Orosz

June 2011

ELTE Faculty of Social Sciences, Department of Economics


Part I

Economic analysis of the health system

Week 1–7

Author: Éva Orosz

Supervised by Éva Orosz




• Week 1: Analysis of the health system: basic concepts.

Introduction to health economics

• Week 2: Markets and market failure in health care and health insurance

• Week 3: Role of the state in health care

• Week 4: Health care financing

• Week 5: Resource allocation in health systems

• Week 6: Analysis of health expenditure

• Week 7: Health policies for sustainable financing and improving efficiency


Week 1

Analysis of the health system:

basic concepts

Introduction to health economics

Author: Éva Orosz

Supervised by Éva Orosz




• Health economics as a discipline

• Relationships of health, health care and economy

• Health care as an economic good

• Need, demand and supply

• Components and functions of the health system

• Assessment of health system

performance: criteria, methods and



Health system is an important branch of national economies

• Spending on health services and goods

amounts to 7-15% of GDP in OECD countries

• Manpower employed in health and social

services amounts to 6–16% of the employed in OECD countries

• At micro-level: a hospital may serve as one of the most important economic organization in the given area (in terms of employment,

demand for goods produced by other economic branches, etc.)

• A driving force of innovation


Health economics as a discipline

• Analysis of health care and health

system – from the perspective of the allocation of scarce resources

– Application of methods of economics for the analysis of the health care


– A multidisciplinary approach to the

allocation of health sector’s scarce



Centre for Health Economics, University of York


Limitations of health economics

“A larger challenge for macroeconomic policymakers is the enormous gap that exists between the recognition of the need to achieve more effectiveness in the use of resources to achieve quality health outcomes and the knowledge base available to implement good policies to achieve these outcome ..”


Hsiao and Heller, 2007



Health status, health care (spending) and the economy

Basic issues to explain and measure:

• Contribution of improvement in health to economic growth

• Contribution of economic growth to improvement in health status

• Contribution of health care to improvement in health status

• How can the performance of health system be

improved? Would higher health spending result in a higher performance?

• How does public spending on health influence

health status and economic growth?


Grossman model of inputs to and outputs from health

Healthy time Health care

Education Housing Income

Employment status Nutrition

Individual’s stock of health


Source: (Donaldson and Gerard, 2005)


Determinants of health and health inequalities

Source: COM(2009) 567


Impact of health status on the economy – at individual level

Positive impact of improving health status / or increasing life expectancy on:

• productivity

• willingness to save

• (childhood health status on) learning capacity

and creativity


Channels through which health may influence macro and microeconomic variables

Source: IMF WP 07/13


Worsening economic conditions Decreasing health


Improving health status Improving economic


Productivity, supply of labour;

Education; Savings Consumption of healthy goods;

Health care; Knowledge;


Decreasing productivity, labour supply and savings, weakening incentives for human capital


Scarcity; Lack of security Consumption of goods

jeopardizing health;

Environmental pollution; Risky work conditions, stress

Lower environmental pollution

Source: (Kollányi, 2011)

Manifold relationships between health status and the



The impact of health systems – new research findings

• “ Health services themselves do make a difference. The evidence of this is complex but consistent, showing that around a half of life expectancy increases in recent decades stem from improved health care. ”

– Figueras, J. et al: Health systems, health and wealth: Assessing the case for investing in health systems. WHO, 2008, p.



Demand for formal care

Demand for lay care

Felt need but unexpressed

Unfelt need


The ”clinical iceberg” (based on Last,1963)

Source: (Black and Gruen, 2005)



Felt need Demand

Felt need

Professionally defined need

Unmet need Met need Screening


Need, demand and supply

Source: (Black and Gruen, 2005)





The nature of the goods

Public Mixed Private

+ – + – + –

+ + +

Consumer protection Policy-making


Setting standards Quality-control

Consumer goods / providers Clinics


Health service providers Pharmaceuticals

Health care as economic goods

Source: (Preker and Harding, 2005)


Types of health care as economic goods

• Public goods

• Low-cost private goods

• High cost private goods (can be paid from savings)

• Catastrophically costly private goods (that may result in loss of property, grave indebtedness or even impoverishment of the families affected)

• In economic terms, most health services and goods are quasi-private or private goods.

– Externalities: private markets produce more (e.g., antibiotic resistance) or less (e.g., vaccination) than optimal for society’s welfare.


Health system and health system goals

Source: (WHO, 2006)


Health financing system Revenue collection

Pooling Purchasing Resource generation

Service delivery


Equity in utilization and resource distribution


Transparency and accountability

Health gain Equity in

health Financial protection

Equity in finance


Health system functions Intermediate objectives of health

finance policy

Health system goals


Basic questions of health system analysis

• How to provide a description of a health system?

• When can a health system be considered well-functioning?

• How to assess/measure health system performance?

• How to influence the performance of a

health system?


Description of a health system: basic issues

• Who are covered by compulsory social insurance/

government programmes?

• What services are goods are included in the

service-basket of the publicly financed system in a county?

• How resources to finance health services and goods are raised?

• What payment-methods are applied to pay for services /to provides?

• What characteristics does the service provision have?

• What components of and how the health system are regulated?

• How (and whether) adequate human and material conditions of operation of the health system are ensured?


Measuring health system performance

• Performance: the extent of achievement of the basic health system goals

• Conceptual framework

– The concept of performance (and its dimensions)

– Clarifying cause-consequence relationships – Developing adequate indicators

• Information system

• Analysis, interpretation of results

• Utilisation of performance indicators in practice

• Analysis of the system of performance

measurement and its operation in practice


Criteria applied in measuring health system performance

• Improvement in health status (health-gain due to health interventions)

• Financial protection

• Responsiveness (patients’ satisfaction)

– Responsiveness can be categorised as a component of quality of care.

• Reducing inequalities (equity in health, in finance, in access to care)

• Efficiency

• Quality of care

• Saving human life (can be categorised as a component of health gain)

• Respect of human dignity (can be categorised as a component of responsiveness)

• Individual freedom (can be categorised as a component of responsiveness)

• Sustainability of financing

• Transparency and accountability of health policy / decision-making


Components of health care quality

• Structure (human resources, technology)


Adequate and effective therapy

provided in time and in a continuous, coordinated way

• provided in a way acceptable for the patient (ethical, acceptable waiting time, etc.)

Patient’s safety

Outcome (health-gain)


The definition of efficiency in health care

• Technical efficiency

– To minimize costs of producing a given output (the same outputs)

• Cost-effectiveness

– To produce a unit of health-gain (e.g. QUALY) at the lowest cost, considering the available alternative

technologies for treating a given health condition

• Allocative efficiency

– To achieve an allocation of resources where it is not possible to change the utilisation of society’s health resources in a way that to make any individual

better off without making some other individuals worse off (in terms of health-gain)


OECD conceptual framework for health care quality indicators

Source: (OECD, 2006)


Conceptual framework for evaluating technical efficiency and cost-effectiveness measures


Increase in the quality and length of life, etc.

Equity in access, etc.


Number of patients treated, day beds,

in-patient admissions, etc.


Measured in physical terms (No. Of physicians, hospital beds, etc.)

Measured in financial



Technical efficiency

Source: (OECD, 2008)


Indicator systems: international organizations

• EU: European Community Health

• Indicators (ECHI)

• EU: Sustainable development Indicators

• OECD: Health at a Glance

• OECD Health Care Quality Indicators Project

• WHO: Monitoring and evaluation of

health systems strengthening framework


Indicator systems: country examples


• USA: Commonwealth Fund. ”Why Not the Best?

Results from the National Scorecard on U.S.

Health System Performance”, 2008

• United Kingdom: NHS Performance Framework


76 81 88 84 89 89

99 97

88 97

109 106

116 115 113

130 134 128


65 71 71 74 74 77 80 82 82 84 84 90 93 96 101 103 103 104 110

0 50 100 150

France Japan

Australia Spain

Italy Canada

Norway Netherlands

Sweden Greece

Austria Germany

Finland New

Zealand Denmark

United Kingdom Ireland

Portugal United States 1997/98 2002/03

Deaths per 100,000 population*

* Countries’ age-standardized death rates before age 75; including ischemic heart disease, diabetes, stroke, and bacterial infections.

See report Appendix B for list of all conditions considered amenable to health care in the analysis.

Data: E. Nolte and C. M. McKee, London School of Hygiene and Tropical Medicine analysis of World Health Organization mortality files (Nolte and McKee 2008).

A key indicator of health system performance:

Mortality Amenable to Health Care

Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2008


Diagnosis: causes of good/poor performance

• Context of the health system: socio- economic and political factors

• Actors of the health system

• Structural characteristics and

mechanisms of the health system


Factors amenable to health policy interventions (reforms)

• Revenue-raising

• Payment-methods of providers

• Institutional/organisational structure of service provision

• Regulation

• Changing behaviour patterns/habits/attitudes

(patients, medical personnel, etc.)


Health systems: tools, instrumental and basic goals

Source: (Hsiao-Heller, 2007)



Black, N. and Gruen, R. (2005), Understanding Health Services, Open University Press

COM(2009) 567: Commission Communication Solidarity in health: Reducing health inequalities in the EU

Figueras,J. et al. (2008), Health systems, health and wealth: Assessing the case for investing in health systems. WHO, Copenhagen

Folland, S. et al. (2008), The Economics of Health and Health Care (Fourth Edition), Pearson Education

Hsiao, W. and Heller, P. (2007), What Should Macroeconomists Know About Health Policy? IMF Working Paper. WP/07613. International Monetary Fund

Kelley, E. and J. Hurst (2006), Health Care Quality Indicators Project:

Conceptual Framework Paper, OECD Health Working Papers, No. 23

Murray, C. – Frenk, J. (2000), A framework for assessing the performance of health systems. Bulletin of the World Health Organisation, 2000, 78(6)

Häkkinen, U. and Joumard,I. (2007), Cross-country analysis of efficiency in OECD health care sectors: Options for research, Economics Department Working Papers, No. 554

Smith, P.C. (ed.) (2009), Performance measurement for health system

improvement: experiences, challenges and prospects, Cambridge University Press, 2009



• Compulsory private insurance: all residents (or a large group of the population) are obliged to take out health insurance with a health insurance company or health insurance

• Compulsory private insurance: all residents (or a large group of the population) are obliged to take out health insurance with a health insurance company or health

• How are the composition, quantity, quality and costs of services taken into account by the payment methods. •

• Incorporating quality elements into contracts between financier and provider.. financiers) contracts the agent (e.g. physician) to implement a given activity (e.g., to

(current expenditure on health) plus gross capital formation in health care provider industries” (OECD, 2000, p.. • Includes imports of health care (health spending abroad

• “Total expenditure on health measures the final use of resident units of health care goods and services (current expenditure on health) plus gross capital formation in health

Quality of care and efficiency of resource allocation is a vector of the individual decisions by the actors of the health system.. Main causes of inadequate efficiency

Health policies for sustainable financing and improving efficiency.. Author: Éva Orosz Supervised by