Health Policy in Economic Perspectives: Introduction 13 SEP 2007 서울대학교 의과대학 의료관리학 교실 김영치 Young Chi Kim, MD, PhD, MPH
Nature of Medical Care as a Commodity
Irregular Demand for Medical Care Information Imbalance Uncertainty Not-for- Profit Providers Third Parties Financing The Nature of Demand
Irregular and unpredictable Associated with an assault of personal integrity: death, impairment, loss or reduction of earning ability Expected Behavior of the Physician
The customer cannot test the product before consuming it. There is an element of trust in the relation. “collectivity-orientation” where self- interest on the part of participants is the accepted norm Product Uncertainty
Uncertainty as to the quality of the product Recovery from disease is unpredictable Informational inequality Supply Conditions
Restriction of entry by licensing Pricing Practices
Extensive price discrimination Comparisons with the Ideal Competition Model under Certainty
Nonmarketable commodities Increasing returns Entry Pricing Structure of Health Economics
1. Nature of Health 2. Production of Health
3. Confounding 5.Demand for factors Health Care 4. Microeconomic evaluation 7. Market Equilibrium 6. Supply of Health Care 9. Health Policy And Management 8. Macroeconomic Evaluation Nature of Health Proximate Determinants of Health
Household’s Resources: - Financial income and assets - Physical assets (land, animal, etc.) - Human assets (knowledge, literacy) Household Actions & Risk Factors: - Use of health services - Dietary, sanitary and sexual practices -Lifestyles Community Factors: - Cultural norms and values - Community institutions -Social capital - Environment -Infrastructure Blum’s Health Model FACTORS INFLUENCING HEALTH Confounding Factors
Environment Aging Population Technology Microeconomic Evaluation
CEA CBA Demand for Health Care
Nature and production of health Increase future productivity Socioeconomic characteristics of the population Patient demographics Access barriers Role of providers Supply of Health Care
Cost of production Input substitution Nature and role of incentives Market Equilibrium
Markets are able to effectively allocate scarce resources where they are most productive by establishing a price for everything. Macroeconomic Evaluation
Analysis of the overall goals and objectives of health care system - How well is the system performing - Is it accessible - Is it affordable - Is quality at the desired level Health Policy and Planning
Interaction of private sectors, government, and NGOs - setting national goals - determining the strategies for reaching those goals - establishing rules of the game that regulates how health care markets work Looking for better ways to provide, deliver, and pay for a growing menu of health care services demanded by an insatiable public William’s Agenda for Health Economics
Objectives: What precisely are the objectives of the health care system Roles: How should they sub-divided and assigned to different actors in the health care system Information gaps: What information do these actors need in order to discharge their responsibilities properly Measurement problems: Can their performance be measured and monitored accordingly Incentives; What incentive systems are appropriate for each actor in the system Basic Key Concepts
Scarcity and Choice Opportunity Cost Marginal Analysis Self-interest Markets and Pricing Supply and Demand Competition Efficiency Public Goods Comparative Advantage How markets work
People respond to incentives Voluntary exchange provides mutual gains Profits attract entrepreneurs Competition encourages efficiency Private property rights are essential in free societies The fact of scarcity necessitates some form of rationing Opportunity cost is the real cost of what we choose Productive resources are limited. Therefore, people cannot have all the goods and services they want; as a result, they must choose some things and give up others. People respond predictably to positive and negative incentives. Different methods can be used to allocate goods and services. People acting individually or collectively through government must choose which methods to use to allocate different kinds of goods and services. Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something: few choices are "all or nothing" decisions. Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation and usually among individuals or organizations in different nations. Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services. Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives. Competition among sellers lowers costs and prices and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them. Entrepreneurs are people who take the risks of organizing productive resources to make goods and services. Profit is an important incentive that leads entrepreneurs to accept the risks of business failure. Investment in factories, machinery, new technology, and in the health, education, and training of people can raise future standards of living. Income for most people is determined by the market value of the productive resources they sell. What workers earn depends, primarily, on the market value of what they produce and how productive they are. A nation's overall levels of income, employment, and prices are determined by the interaction of spending and production decisions made by all households, firms, government agencies, and others in the economy. There is an economic role for government in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income. Costs of government policies sometimes exceed benefits. This may occur because of incentives facing voters, government officials, and government employees, because of actions by special interest groups that can impose costs on the general public, or because social goals other than economic efficiency are being pursued. Efficiency: PPF
Public sector
I
U Private sector Law of Diminishing Returns
Units of input Total output Extra output added by additional unit of input
00 1 2000 2000 2 3000 1000 3 3500 500 4 3800 300 5 3900 100 Economic Optimization
Benefits and Costs TC
B A TB
Units of medical MC care
MB
"Flat-of-the-curve medicine" Law of Demand: Change in Quantity Demand
price
B P1
A P0
D1 quantity Q1 Q0
Decrease in Quantity demanded Law of Demand: Change in the Level of Demand
Price
A' B' P0
D1 D2 Quantity Q0 Q1
Increase in the Level of Demand Price Elasticity of Demand
Ep = percent change in Q percent change in P = △Q/Q = P△Q = P/Q △P/P Q△P slope
= (∆Q / Q) / (∆P / P)
= { (Q2 -Q1) / (Q2 + Q1)} / { (P2 –P1) / (P2 + P1)} Elasticity of Demand Along the Straight-Line Demand Curves
P PP D Elastic Unit Elastic D Inelastic D QQQ Perfectly Perfectly Elastic Inelastic E = ∞ Elastic 1 < E < ∞ E = 0 Unit Elastic E = 1 Inelastic 0 < E < 1 Price for Vaccinations, Quantity Demanded, and Total Revenue
Price (W) Quantity Demanded TR (W)
10000 0 0 9000 100 900000 8000 200 1600000 7000 300 2100000 6000 400 2400000 5000 500 2500000 4000 600 2400000 3000 700 2100000 2000 800 1600000 1000 900 900000 Relation among Price, Quantity Demanded, and Total Revenue
Price per unit (W) 10000
5000
0 Quantity 500 1000 TR (W) 2500000
Quantity 0 1000 Two Different Demand Curves at a Single Price
P A B 3000
2900 C D
Q 10000 10300 10500
Responsiveness of quantity demanded to price for differently sloped demand curves. Curve BC shows a greater responsiveness of quantity demanded to price than does the curve AD. Law of Supply: Change in Quantity Supplied
Price S B 1 p1 A p0
Quantity Q0 Q1
Increase in Quantity Supplied Law of Supply: Change in the Level of Supply
Price S1 S2
A' B' P0
Quantity Q0 Q1
Increase in the Level of Supply Equilibrium
Price S Surplus P1
P0
P2 Shortage D 0 Quantity Q0