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INTRODUCTION TO HEALTH ECONOMICS (ICM4016)

Level: First year undergraduate (level 4)

Semester: B

Course credits: 15 ECTS

Course coordinator:

Dr. Petra Sevcikova
Senior Researcher
Centre for Primary Care and Public Health
Blizard Institute
Queen Mary University of London
Yvonne Carter Building, Room 1.09
58 Turner Street, E1 2AB London

Course content

Economics is a core discipline of public health. Economic analysis is used to determine how to achieve efficiency and equity through the institutions of government and the market. It makes an important contribution to debates about the role of the state and the extent and means of redistribution in society. All governments accept some responsibility for the allocation of health care throughout society and none leaves allocation entirely to the market. This module is concerned with the theories behind and the mechanisms of government and market control in the health care system, and with the resource distributions that result.

This module will introduce core theories and concepts of economics and discuss their applications in health policy. The module will introduce theories of scarcity, demand, and need. It will describe the theories of the market, and discuss market theory in relation to the specific characteristics of health and health care. It will introduce students to market failure and the notion of public and private goods. We will also introduce the basic concepts and methods of economic evaluation that inform decisions about alternative resource allocations and priority setting at various levels in a health care system.

Learning aims

By the end of the course students will be able to:

  • Define and explore health care resource allocation mechanisms employed in different health systems
  • Explain the key economic concepts and theories used to analyse the behaviour of patients, doctors, and other providers of health care
  • Identify and critically appraise economics arguments commonly applied within health care policy-making
  • Examine the limits of economic analysis in health care policy making
  • Explain the rationale for the use of economic evaluation in health care and to have a critical understanding of the limitations of economic evaluation
  • Write clearly, concisely, and critically on the application of the knowledge obtained during the course to specific health policy issues
 
 
 

The course will be taught by a combination of weekly lectures and seminars and by a combination of in-class and online activities. It is essential that you read in preparation for all seminars as you will be expected to contribute to small group and wider class discussions and to make a presentation to your peers, stimulating discussion by highlighting key questions and concepts.

In teaching I use games, experiments and simulations to illustrate economic concepts and theories and various decision-making situations relevant to health policy. Such learning activities are traditionally used in economics and in my experience, these activities are especially suitable for teaching economics to non-economists because of their limited demands on prior knowledge of economics.

Lecture notes and slides, and essential readings will be available via QMPlus.

Class meetings: Biweekly Mondays 2-5pm (Week 1,3,5,8,10,12)

Online activities: Biweekly (Week 2,4,6,9,11)

Assessment  

The final grade of the course is based on two assessments:

1) Written assignment (50% of total grade). Each student will write a short paper individually. Assessment criteria for the paper will be provided at the start of the course. The paper will be limited to 1000 words.

2) Written exam (50% of total grade). At the end of the course, a written exam will be used to assess whether students have met the course’s learning aims. The written exam will comprise multiple-choice and open questions covering the main course readings, the additional readings for the seminars, and the lectures.

Main course readings

The following list of readings will be used as the main course literature. For each week, the week-by-week programme shows which readings will be discussed. Students are expected to read these readings in advance of the lectures. Furthermore, short additional readings are assigned for some of the seminar meetings. These are also shown in the week-by-week programme.

Morris, S., Devlin, N., and Parkin, D. (2007) Economic analysis in health care. Chichester:Wiley.

Office of Health Economics (2007) The economics of health care. https://www.ohe.org/sites/default/files/TheEconomicsofHeathCare2007.pdf

Glossaries

Glossaries of Economic Terms provides short cuts to definitions of basic economic concepts: http://www.economicsnetwork.ac.uk/teaching/glossaries.htm

OECD ‘Glossary of industrial organisation economics and competition law’ (http://www.oecd.org/dataoecd/8/61/2376087.pdf)

Glossary of Frequently Encountered Terms in Health Economics provided by the National Library of Medicine, US is available at http://www.nlm.nih.gov/nichsr/edu/healthecon/glossary.html

Palmer, Byford, and Raftery (1999) ‘Types of economic evaluation’ BMJ 318:1349.

On-line databases

The University of York’s Health Economics Resource Centre provides and extensive list of policy analysis papers examining health policy from an economic perspective. Go to http://www.york.ac.uk/res/herc/research/hedg/publications.htm

WHO databases are also a valuable source of policy analysis:

Health systems: http://www.who.int/topics/health_systems/en/

Health economics: http://www.who.int/topics/health_economics/en/

Health policy: http://www.who.int/topics/health_policy/en/

Health funding: http://www.who.int/healthsystems/topics/financing/en/index.html

Health financing: http://www.who.int/health_financing/documents/list/en/index3.html

European Observatory: http://www.euro.who.int/observatory

Health accounts and country expenditure data: http://www.who.int/nha/en/

The World Bank’s web site includes a section on ‘Human Development and Public Services’; useful reports on Health and Nutrition can be found at: http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/EXTPUBSERV/0,,contentMDK:20292631~menuPK:545282~pagePK:64168182~piPK:64168060~theSitePK:477916,00.html

  1. Introduction:  Why do we study economics? 

Economics is the science concerned with choices about resource allocation under conditions of scarcity in order to derive the maximum possible benefit from available resources. Economic analysis has played an important role in answering policy questions about the relative roles of public and private sectors as well as questions such as the appropriate reward structures for medical professionals, the efficiency of insurance markets, how to contain costs, and the role of markets in resource allocation.

Topics

    • Scarcity and priority setting
    • Opportunity costs
    • Uses of economic analyses in health policy

 

 

Learning outcomes

  • To be able to explain the rationale for the use of economic analysis in health care
  • To be able to define and explore health care resource allocation mechanisms employed in different health systems

Essential reading

Morris et al. Chapter 1

OHE (2007) The economics of health care. Chapter 1

https://www.ohe.org/sites/default/files/TheEconomicsofHeathCare2007.pdf

  1. Micro-economic tools for health economics 

The neoclassical school of economics concentrates on market solutions to the problem of scarcity. Its basic axiom is that under certain specific conditions markets will lead to the most socially beneficial distribution of resources. This has important implications for public policy and the role of government. In this lecture students are introduced to the basic economic concepts and assumptions which underpin the argument for the market driven allocation of resources.

Topics

  • Utility, demand, supply
  • allocative and productive efficiency
  • competitive equilibrium
  • perfect market assumptions

Learning outcomes

 

  • To understand the key economic concepts underpinning the involvement of  markets in the provision of health care services

 

Essential reading

OHE (2007) The economics of health care. Chapter 2 https://www.ohe.org/sites/default/files/TheEconomicsofHeathCare2007.pdf

  1. Health and health care as goods 

The aim of this lecture is to investigate whether health services are economic goods traded in a perfect market. We will explore market failure arising from and policy responses to situations riddled with imperfect information. The focus will be on patient-physician relationship under out-off-pocket payments and when an insurance coverage is available.

Topics

  • Needs, wants and effective demand for health care
  • Elasticity of demand
  • Asymmetric information and imperfect agency: principal-agent problem, supplier-induced demand

Learning outcomes

    • To have a critical understanding of information asymmetry in the patient – health care provider relationship and its implications for demand for health care
    • To explain the concept of elasticity and its use in health policy making

 

 

Essential reading

OHE (2007) The economics of health care. https://www.ohe.org/sites/default/files/TheEconomicsofHeathCare2007.pdf

Morris et al. (Sections 2.5 & 2.6)

  1. The supply of health care 

This lecture and the accompanying seminar will focus on the public and market provision health care services and products. Economic analysis is used to determine how to achieve efficiency and equity through the institutions of government and the market. It makes an important contribution to debates about the role of the state and the extent and means of redistribution in society. We will examine core concepts and methods of economic analysis and how they have been used in health care sector reforms.

Topics

  • Monopoly and monopolistic competition
  • Government failure and market efficiencies
  • Imperfect competition
  • Privatization and the role of the government and markets in health care

Learning outcomes

  • To explain key economic concepts contributing to the debate on public-private roles in health care
  • To have a critical understanding of the limits of the economic perspective

Essential reading

Morris et al. Chapter 4 (selected sections)

WHO (1995) ‘Privatization in health’ Health Economics Briefing Note, WHO Task Force on Health Economics (http://whqlibdoc.who.int/hq/1995/WHO_TFHE_TBN_95.1.pdf)

  1. Externalities and public goods

The aim of this lecture is to explore another two types of market failure arising from information imperfections – externalities and public goods – and to look at policies that aim to reduce market inefficiencies in these two situations.

Topics

  • Externalities
  • Public goods and global public goods

Learning outcomes

  • To understand market failure and the role of government in the context of externalities and public goods
  • To be able to examine applications of the concept of externalities and public goods in policy making

Essential reading

Morris ch 5 (Market failure in health care; especially 5.3)

Smith et al (2003), Global public goods for health: health economic and public health perspectives, chapter 1 ‘Global public goods and health: concepts and issues’ by Woodward and Smith

  1. Health insurance and health care financing 

Demand for health care is unpredictable and consumers seek health insurance to spread costs of health care. Health insurance markets are riddled with imperfections that make the optimal organisation of insurance challenging. Concepts of risk pooling, adverse selection, and moral hazard will be introduced and we will discuss policies that aim to reduce inefficiencies in insurance markets as well as their impact on demand, health care utilization and cost containment.

Topics

  • Uncertainty and demand for health insurance
  • Risk pooling
  • Adverse selection
  • Moral hazard

Learning outcomes

  • To have a critical understanding of approaches to health care financing and their consequences for risk-pooling and cost-sharing
  • To understand economic concepts used to analyse insurance markets
  • To explain key policies addressing health insurance markets imperfections and their limitations

Essential reading

Morris et al. (2007) “Economic analysis in health care” (especially, 6.8 and 6.9-6.13)

  1. & 8. Measuring health need

Two lectures and two seminars will focus on health needs assessment (HNA). HNA is a systematic approach to describe health needs of a population, to identify inequalities in health and access to health care services, and to determine allocation of resources in health care. We will look into data required for HNA and approaches used at local and international level.

Topics

  • Epidemiological, routine, and cost-effectiveness data
  • DALYs, QALYs
  • Perspectives in needs assessment

Learning outcomes

  • To have a critical understanding of the role of epidemiology, economics and values in HNA
  • To understand approaches to HNA at local and international level
  • To have a critical understanding of data required, their availability and quality

Essential reading  

The BMJ series on Health Needs Assessment (1998)

Pollock AM & Price D (2013) ‘Loss of population data sources when health systems are not responsible for geographically defined populations: implications of the Health and Social Care Act of 2012 in England’. [http://www.allysonpollock.com/wp-content/uploads/2013/05/EBM_2013_Pollock_LossOfPopulationData.pdf]

  1. & 10. Economic evaluation 

Under the economic evaluation theme we will discuss the rationale for the use of economic evaluation in health care. To inform decisions about priorities and optimal allocation of resources in health care provision, economic analysis employs various evaluation methods. Key characteristics of these methods will be introduced. Examples of how economic evaluation is used in practice will be provided.

Topics

  • Cost-effectiveness, cost-utility
  • Measuring and valuing resources, outputs and outcomes
  • Economic evaluation in practice

Learning outcomes

  • To be able to explain the rationale for the use of economic evaluation in health care
  • To understand the key methods of economic evaluation
  • To have a critical understanding of the limitations of economic evaluation

Essential reading

Morris et al (2007) Chapter 9 & 12

Palmer, Byford, and Raftery (1999) ‘Types of economic evaluation’ BMJ 318:1349.

  1. Equity and efficiency 

No country in the world leaves the allocation of health care entirely to the invisible hand of the market. But what happens to economic efficiency when governments intervene to ensure that those on low incomes still get health care and to ensure that local health services stay open? The neoclassical account states that efficiency is reduced because any interference in the market reduces consumer welfare. Many economists realise that this is an unrealistic position because it essentially relies on the claim that government intervention is always and everywhere inefficient. These economists argue that alternative definitions of efficiency are required. In this lecture we will examine standard economic approaches to equity and efficiency.

Topics

  • The equity/efficiency trade off
  • Pareto optimality
  • Welfarist and extra welfarist foundations of economic evaluation

Learning outcomes

  • To understand the limits of economic analysis in health care policy making

Essential reading

Morris et al (2007) Section 12.3, 7.3

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