Chapter 2 - Using Economics in Healthcare

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Chapter 2 - Using Economics in Healthcare

• Economics attempts to explain human behavior
• Purchasing decisions
• Market conditions
• Complex social issues
• Value of X vs Y
• Usually goods for money (or other personal
  investment)

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Economic Efficiency

• Based on premise of scarcity
• The point where average product is maximized
• AND average variable cost is minimized
• Several measures
• Outcomes
• Production / consumption rate
• Overall productivity

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Key Assumptions in Efficiency

• Rational behavior
• Prudent decision making
• Consumers and suppliers
• Microeconomics
• Consistent framework in decision making
• All information to make a decision
• Omnipotence??
• Rational ignorance

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EMS Efficiency Example

• Unit Hour Utilization (UHU)
• Time an ambulance is on a call
• Revenue generating
• Total calls / Total time on duty
• 10 calls in 12 hours 0.833
• Balance is key
• UHU too high means?
• UHU too low means?

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Key Assumptions in Economics

• Economizing behavior
• Choose to limit demand for goods services to
  save money
• Market
• Transactions
• Perfect market
• Wall Street example
• Enron, Worldcom, Global Crossing example of
  perfect

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Key Assumptions in Economics

• Optimizing Behavior
• Determine the best possible outcome for a given
  situation
• Cost and availability of resources
• Intersection of Benefits and Cost
• Decisions made on 2 levels
• Micro MD and patient
• Marco Policy makers and market

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Marginality

• Marginal Cost
• The cost of providing 1 additional unit
• Emergency Department example
• Cost allocation issue
• Marginal Benefit
• The benefit of providing 1 additional unit
• Cardiac Cath suite example

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Example
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Opportunity Cost

• The trade off of doing A vs. B
• Buying a car vs. saving for retirement
• Coming to class vs. partying
• Education for the young vs. healthcare for the
  elderly
• In healthcare
• Cost of curative measures vs. preventive measures
• Which is the smarter investment

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Cost Effectiveness

• Which among a series of alternatives is cheaper
• For cardiac ailments, is it better to
• a) CABG
• b) Hypertension screening
• c) Nutrition counseling

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Opportunity Cost

• The cost of NOT doing something
• 45k job vs. 50k job
• Taking the 45k job 5k of opportunity cost
• Need vs. Demand
• MDs make medical decisions based on need
• Need-based decisions ignore the global resource
  allocation issues

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Cost/Benefit Analysis

• Is the benefit of X worth the cost
• Does kidney transplant yield enough additional
  years of life to justify the expense
• Rx example
• Macro vs. Micro

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Demand and Supply

• The Law
• Inverse relationship between the demand for a
  commodity and the sacrifice that must be made to
  obtain it
• The greater the sacrifice, the lesser the demand
• Harley exemption
• Fraternity exemption

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Price Elasticity

• How sensitive is the consumer to price?
• On a brand level
• On a commodity level
• Where is healthcare on the elasticity scale?
• Why?