ECONOMIC ANALYSIS IN HEALTH CARE

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1 ECONOMIC ANALYSIS IN HEALTH CARE Second Edition Stephen Morris Nancy Devlin David Parkin and Anne Spencer WILEY A John Wiley and Sons, Ltd, Publication

2 Preface xiii Chapter 1 Introduction to economic analysis in health care Life, death and big business: why health economics is important Health care as an economic good Health and health care Wants, demands and needs The production of health and health care Deciding who gets what in health care Is the market for health care special? Describing versus evaluating the use of health care resources Judging the use of health care resources \ 17 Chapter 2 The demand for health care Why study demand? Profits, policy and improving health Consumer choice theory - : Preferences and utility Budget constraints and maximisation Demand functions The determinants of demand Estimating demand functions Price and income elasticity of demand Modelling choices about health Understanding consumption of health and health care Understanding investment in health care Predictions of the Grossman model Needs, wants and demands Asymmetry of information and imperfect agency Aggregate.demand for health care: theory and evidence 48

3 Chapter 3 The production and costs of health care Introduction The theory of production Production functions Marginal products Technical efficiency and isoquants Substitutability between inputs Production frontiers Multi-product firms Returns to scale, additivity and'fixed factors Costs Costs and production Cost functions Scale economies, long- and short-run cost functions and scope economies 73 Chapter 4 The supply of health care Firms, markets and industries in the health care sector of the economy Structure, conduct and performance in the health care industry \ Profit maximisation models How firms maximise profits ' Perfect competition Monopoly Monopolistic competition, Oligopoly, '' Game theory Goals other than prbfit maximisation Growth maximisation behavioural theories of the firm ' Utility maximisation Maximising net income per physician Competition, contestability and industrial policy 109 Chapter 5 Markets, market failure and the role of government in health care Introduction «' Using perfectly competitive markets to allocate resources Equilibrium in competitive markets The; efficiency of competitive markets Market failure in health care 117

4 Externalities Caring externalities Market power Public goods Information imperfections 5.4. Government intervention in health care Direct government involvement in the finance anc1 provision of health care Taxes and subsidies v Regulation Provision of information The theory of second best 5.5. Government failure Chapter 6 Health insurance and health care financing Uncertainty and health care financing 6.2. Risk and the demand for health insurance Risk attitudes and the diminishing marginal utility of income The demand for insurance and indifference The market for health insurance and market failure The supply of health insurance Adverse selection Moral hazard Non-price competition Incomplete coverage Reimbursement : Retrospective reimbursement Prospective reimbursement Integration between third-party payers and health care providers Preferred provider organisations Health maintenance organisations Point-of-service plans Health care financing systems 154 Chapter 7 Equity in health care 7.1. Introduction Equity in the finance of health care VerticaJ equity Kaljwani's progressivity index Horizontal eauitv

5 7.3. Equity in distribution Equity in the distribution of health care, of health or of utility? Some concepts of equity Measuring equity in distribution, Horizontal inequity Vertical equity Inequalities in health 180 Chapter 8 Health care labour markets Labour as a factor of health care production Supply of health care labour Demand for health care labour Wages and employment in perfect labour markets Economic rent and transfer earnings Wage determination and employment in imperfect labour markets Employers and workers with market power Labour markets slow to respond to changes in demand and supply Non-maximising behaviour -, Discrimination s Health care labour market shortages 201 Chapter 9 Welfarist and non-welfarist foundations of economic evaluation The normative economics foundations of economic evaluation Welfare economics The Pareto principle ' Potential Pareto improvements Social 1 welfare functions Measurability and comparability of utility The application of welfare economics Non-welfarism Is there a link between welfarism and non-welfarism? 229 Chapter 10 Principles of economic evaluation in health care What is economic evaluation? The economics foundations of economic evaluation Cost-benefit analysis Cost-effectiveness analysis 236

6 10.3. Economic evaluation applied to health care programmes Decision rules for cost-benefit analysis Decision rules for cost-effectiveness and cost-utility arialysis Ratio measures The cost-effectiveness plane, The cost-effectiveness threshold and acceptability The incremental cost-effectiveness ratio Net benefits Probabilistic approaches Equity in economic evaluation 250 Chapter 11 Measuring and valuing health care output Introduction Monetary valuations of health care benefits Revealed preference Stated preference Discrete choice experiments The measurement of health outcomes Making health status indicators fit for purpose Generic and specific measures Profiles and indices x Measuring health-related quality of life: an indifference curve approach The measurement of health gain Non-monetary valuation of health states Rating scales, category scales and visual analogue scales The standard gamble Time trade-off How do we choose between these methods? Multi-attribute utility measures The.valuation of health states: willingness to pay for health changes, The value of life 284 Chapter 12 Economic evaluation methods Introduction Selecting the viewpoint Estimating costs Methods and data used in estimating costs Whfch costs should we include? jhould future costs and cost savings be included? What if cost data are from different time periods? 294

7 XII CONTENTS Chapter 13 References Author Index Subject Index The measurement of health gain Measuring quality-adjusted life year (QALY) gains Measuring healthy year equivalents (HYEs) Measuring disability-adjusted life years (DALYs) Discounting The rationale for discounting monetary costs and benefits The discounting formula The choice of discount rate Discounting health effects Modelling-based economic evaluation Using multiple sources of data Decision analysis Markov models Trial-based economic evaluation Dealing with uncertainty: sensitivity analysis One-way sensitivity analysis Multi-way sensitivity analysis Statistically-based sensitivity analysis The use of economic evaluation in decision making N The decision-making context: why is economic evaluation used? Who buys economic evaluations? Does it matter? Is economic efficiency all that matters? Need : Equity ' Process-ofn:are considerations Ethical imperatives How is economic evaluation used to make decisions in practice? Cost-effectiveness league tables Programme budgeting and marginal analysis Programme budgeting Marginal analysis 13:7. Cost-effectiveness thresholds Evaluating economic evaluation

ECONOMICS PUBLIC SECTOR. of the JOSEPH E. STIGUTZ. Second Edition. W.W.NORTON & COMPANY-New York-London. Princeton University

ECONOMICS PUBLIC SECTOR. of the JOSEPH E. STIGUTZ. Second Edition. W.W.NORTON & COMPANY-New York-London. Princeton University ECONOMICS of the PUBLIC SECTOR a Second Edition JOSEPH E. STIGUTZ Princeton University W.W.NORTON & COMPANY-New York-London Contents Preface Part One xxi Introduction 1 The Public Sector in a Mixed Economy